Answer:
The expected current share price is $7.66
Explanation:
According to the given data, we have the following:
FCF1 = $22 million
FCF2 = $24 million
FCF3 = $29 million
FCF4 = $32 million
FCF5 = $35 million
Growth Rate, g = 2%
WACC = 7%
In order to calculate the expected current share price we have to calculate first the following:
First, we have to calculate the FCF6 as follows:
FCF6 = FCF5 * (1 + g)
FCF6 = $35 million * 1.02
FCF6 = $35.70 million
Next, we have to calculate the Horizon Value of Firm as follows:
Horizon Value of Firm = FCF6 / (WACC - g)
Horizon Value of Firm = $35.70 million / (0.07 - 0.02)
Horizon Value of Firm = $714 million
Next, we have to calculate the Current Value of Firm as follows:
20,560,747+20,962,529+23,672,638+24,412,646+24,954,516+509,072,132
Current Value of Firm = $22 million / 1.07 + $24 million / 1.07^2 + $29 million / 1.07^3 + $32 million / 1.07^4 + $35 million / 1.07^5 + $714 million / 1.07^5
Current Value of Firm = $623.63 million
Next, we have to calculate the Value of Equity as follows:
Value of Equity = Current Value of Firm - Value of Debt + Value of Cash
Value of Equity = $623.63 million - $40.00 million + $14.00 million
Value of Equity = $597.63 million
Therefore, the Price per share = Value of Equity / Number of shares outstanding
Price per share = $597.63 million / 78 million
Price per share = $7.66
The expected current share price is $7.66
