Question

Scampini Technologies is expected to generate $200 million in free cash flow next year, and FCF is expected to grow at a constant rate of 5% per year indefinitely. Scampini has no debt or preferred stock, and its WACC is 11%. If Scampini has 35 million shares of stock outstanding, what is the stock's value per share? Round your answer to two decimal places.

Answer 1

Answer:

The stock's value per share is $90.09.

Explanation:

In order to estimate the value of the share, first we have to estimate the value of the company at year 0 (today). We start from the FCF, that is equal to 200,000,000 (year 1). The formula of the company's value is $FCF * (1+g)/(WACC-g)$, where g is the constant rate of grow (5%). So, the value of the company at year 1 is $200,000,000 * (1,05)/(0,11-0,05) = 3,500,000,000$.

The next step is to obtain the value at year 0, with the formula $Year.1.value / (1+WACC)$. So $3,500,000,000 / (1,11) = 3,153,153,153.15$

Finally, the stock's value per share is $Year.0.value/stock = 3,153,153,153.15/35,000,000 = 90.09$