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Ipatiy [6.2K]
3 years ago
12

You must estimate the intrinsic value of Noe Technologies’ stock. The end-of-year free cash flow (FCF1) is expected to be $27.50

million, and it is expected to grow at a constant rate of 7.0% a year thereafter. The company’s WACC is 10.0%, it has $125.0 million of long-term debt plus preferred stock outstanding, and there are 15.0 million shares of common stock outstanding. What is the firm's estimated intrinsic value per share of common stock? $48.64 $50.67 $52.78 $54.89 $57.08
Business
1 answer:
emmasim [6.3K]3 years ago
3 0

Answer:

= $52.78 per share

Explanation:

<em>The value of a business can be determined using the free cash flow model. According to this model, the value of a firm is is the present value of its free cash flow discounted at the weigthed average cost of capital (WACC.)</em>

<em>The value of equity is the value of firm less value of other instruments (e.g debt and preferred stocks)</em>

<em>Value of equity = Value of the entire firm - Value of debt </em>

We can work out the the value per share using the steps below:

<em>Step 1</em>

<em>Calculate the total value of the firm</em>

Value of firm =  27.50/(0.1-0.07)

 = $916.66 million

<em>Step 2</em>

<em>Calculate the value of equity</em>

<em>Value of equity = Value of the entire firm - Value of debt</em>

= $916.66 million - $125.0 million

=791.666 million

<em>Step 3</em>

<em>Calculate the value per share</em>

Value per share = Value of equity/ units of common stock

=$791.666 million/15 million units

= $52.78 per share

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