Question

You must estimate the intrinsic value of Noe Technologies' stock. The end-of-year free cash flow (FCF1) is expected to be $24.50 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

Answer 1

Answer:

Intrinsic value per share of common stock is $46.11

Explanation:

To calculate the intrinsic value per share, we first need to calculate the value of firm using FCF and then calculate the value of equity by deducting the market value of debt and preferred stock from the value of firm. Then we will divide the value of equity by the number of common stock shares.

Value of firm will be calculated using the constant growth model discounted cash flow approach. The formula for value of firm is,

Value of firm = FCF1 / WACC - g

Value of firm = 24.5 / (0.1 - 0.07)

Value of firm = $816.6666667 rounded off to $816.67

Value of equity = 816.67 - 125  = $691.67

Value per share = 691.67 / 15

Value per share = $46.11