Question

The following information is given related to a 2-stage FCF stock valuation being performed by a stock analyst for a company named Exco. The valuation date is 12/31/18. Free Cash Flows are annual. The FCF for 2019 is estimated to be $5,000. At the valuation date, the firm had $12,500 in long-term debt, $1,200 of short-term debt, $880 of accounts payable, and $3,400 of preferred stock. The firm's WACC is 9.2%, and its Cost of Equity is 12.4%. Assume that Exco has 10,000 shares of common stock authorized, 6,500 shares issued, with 6,100 shares outstanding. Growth rates are provided below, as is the number of years in the analysis period What was the intrinsic value of a share of Exco stock at 12/31/18? Show your calculations for the missing values in the table below on the back of this page. Analysis Period Horizon Period n5 n/a infinite 7.5% 3% first FCF in period $5,000 PV at beginning of Period PV at t=0 What is the Enterprise Value of Exco? (Round to the nearest dollar) What is the Available Value of Exco? (Round to the nearest dollar) What is the intrinsic value of a share of Exco stock? (Round to the nearest dollar)

Please show any and all work or sub-calculations.

Answer 1

Expected FCF1 = $ 5000, Initial Growth Tenure = 5 years and Initial Growth Rate = 7.5 %

Therefore, FCF2 = 5000 x 1.075 = $ 5375, FCF3 = 5375 x 1.075 = $ 5778.125. FCF4 = 5778.125 x 1.075 = $ 6211.484375

FCF5 = 6211.484375 x 1.075 = $ 6677.3457

Perpetual Growth Rate = 3 %  

FCF6 = 6677.3457 x 1.03 = $ 6877.67

WACC = 9.2 %

Therefore, Horizon Value = 6877.67 / (0.092 - 0.03) = $110930.098

Present Value of Horizon Value = 110930.098 / (1.092)^(5) = $ 71439.13785

Present Value of Initial FCFs = 5000 / (1.092) + 5375 / (1.092)^(2) + 5778.125 / (1.092)^(3) + 6211.484375 / (1.092)^(4) + 6677.3457 / (1.092)^(5) = $ 22191.974

Total Enterprise Value = 22191.974 + 71439.13785 = $ 93631.11

Short-Term Debt = $ 1200 and Accounts Payable = $ 880

Therefore, Available Value = 93631.11 - 880 - 1200 = $ 91551.11

Long-Term Debt = $ 12500 and Preferred Stock =$ 3400

Value of Equity = 91551.11 - 12500 - 3400 = $ 75651.11

Number of Shares Outstanding = 6100

Intrinsic Value per Share = 75651.11 / 6100 = $ 12.402 ~ $ 12.4