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

Question

2 years ago

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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] · Answer 1 · 2022-08-04T20:29:01+03:00

Answer:

= $52.78 per share

Explanation:

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.)

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

Value of equity = Value of the entire firm - Value of debt

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

Step 1

Calculate the total value of the firm

Value of firm = 27.50/(0.1-0.07)

= $916.66 million

Step 2

Calculate the value of equity

Value of equity = Value of the entire firm - Value of debt

= $916.66 million - $125.0 million

=791.666 million

Step 3

Calculate the value per share

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

=$791.666 million/15 million units

= $52.78 per share