Question

You are a manager at an investment consulting firm. On 1/1/2017 one of your clients, a well-known industrial firm, requested that you prepare a report to analyze the market value of the company. You carefully studied the previous year's financial statements and held meetings with the senior management who were very helpful in supplying information on the divisions, competition, and their prospects for the following years. Finally, you predict the following short term (six years) stream of Free Cash Flows for the firm in millions of dollars. (E next to the year stands for Expected). 3. 2017E 2018E 2019E 2020E 2021E 2022E FCF's on Dec. 31st in millions of S 58 82 103 110 115 118 After the sixth year you assume a growth rate in cash flows of 1.5% that will continue forever. According to your calculations, the firms, WACC is 14%. The firm has issued bonds outstanding with a book value of S320 million. According to current bond ratings and market yields, you judge these to be worth $295 million. The firm has 20 million shares outstanding. a. Calculate the market value of the firm's assets (Enterprise Value) on 1/1/2017 b. Calculate the market value of the firm's Equity on 1/1/2017. c. What is the price per share according to your analysis?

Answer 1

2021E 2022E TV 2017E 2018E 2019E 2020E Years> FCF (in million $ Discounting factor Discounted FCF (in million S) 110 115 118 82 -c4/(1+14%) -D3 D4 103 -D4/(1+14%) -E3 E4 -G4/(1+14%) -1/(1+14%) -C3*C4 -E4/(1+14%) -F3*F4 -F4/(1+14%) -G3 G4 -H4 -13*14 -H3 H4 Present value of discrete cash flows Present value of terminal period cash flows-|5/(14%-15%) Present value of cash flows -SUM(C5:H5) SUM(C7:C8) 10 Enterprise Value (in million S) Less: Market value of debt (in million S) Equity Value (in million $) 295 12 13 14 15 16 17 18 19 -C11-C 20 No. of shares outstanding (million)