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  3. you have the following data: fcf1 = $-2 million; f

You have the following data: FCF1 = $-2 million; FCF2 = $2 million; FCF3 = $4...

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Finance

You have the following data: FCF1 = $-2 million; FCF2 = $2million; FCF3 = $4 million; FCF4 = $6 million; free cash flow growsat a rate of 3% for year 5 and beyond. The weighted average cost ofcapital is 10%. Assume they have 15 million in debt and 7 millionshares outstanding. Find the price per share.

The answer is $7.46. Not sure how to do the work.

Answer & Explanation Solved by verified expert
4.2 Ratings (884 Votes)

please find below the solution..

i ii iii iv=ii+iii v vi=v*iv
year Dividend Terminal value Total cash flow PVIF @ 10% present value
1        (2.00)              -          (2.00) 0.909091        (1.82)
2          2.00              -            2.00 0.826446          1.65
3          4.00              -            4.00 0.751315          3.01
4          6.00       88.29       94.29 0.683013       64.40
      67.24
Computation of terminal value = expected dividend in year 3/(required rate - growth rate)
=6*103%/(10%-3%)
      88.29
i Value of firm = $   67.24
ii Value of debt 15
iii=i-ii Value of equity $   52.24
iv Number of share = $     7.00
v=iii/iv Price per share = $     7.46
therefore answer = $     7.46

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Transcribed Image Text

You have the following data: FCF1 = $-2 million; FCF2 = $2million; FCF3 = $4 million; FCF4 = $6 million; free cash flow growsat a rate of 3% for year 5 and beyond. The weighted average cost ofcapital is 10%. Assume they have 15 million in debt and 7 millionshares outstanding. Find the price per share.The answer is $7.46. Not sure how to do the work.

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