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Ladwig Incorporated is considering whether to acquire Shocker Enterprises (SE). Estimate the per-share value of SE...

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Finance

Ladwig Incorporated is considering whether to acquire ShockerEnterprises (SE). Estimate the per-share value of SE using adiscounted FCF approach and the following data: • Debt: $75million

• Excess cash: $10 million

• Shares outstanding: 40 million

• Expected FCF: $20 million in each of the next five years,growing after that by 4 percent per year for the foreseeablefuture

• Weighted average cost of capital: 15 percent

Answer & Explanation Solved by verified expert
4.3 Ratings (712 Votes)

WACC= 15.00%
Year Previous year FCF FCF growth rate FCF current year Horizon value Total Value Discount factor Discounted value
1 0 0.00% 20 20 1.15 17.3913
2 20 0.00% 20 20 1.3225 15.12287
3 20 0.00% 20 20 1.520875 13.15032
4 20 0.00% 20 20 1.74900625 11.43506
5 20 0.00% 20 189.091 209.091 2.011357188 103.95518
Long term growth rate (given)= 4.00% Value of Enterprise = Sum of discounted value = 161.05
Where
Total value = FCF + horizon value (only for last year)
Horizon value = FCF current year 5 *(1+long term growth rate)/( WACC-long term growth rate)
Discount factor=(1+ WACC)^corresponding period
Discounted value=total value/discount factor
Enterprise value = Equity value+ MV of debt
- Cash & Cash Equivalents
161.05 = Equity value+75-10
Equity value = 96.05
share price = equity value/number of shares
share price = 96.05/40
share price = 2.4

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Transcribed Image Text

Ladwig Incorporated is considering whether to acquire ShockerEnterprises (SE). Estimate the per-share value of SE using adiscounted FCF approach and the following data: • Debt: $75million• Excess cash: $10 million• Shares outstanding: 40 million• Expected FCF: $20 million in each of the next five years,growing after that by 4 percent per year for the foreseeablefuture• Weighted average cost of capital: 15 percent

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