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

The stock's value per share is $90.09.

Step-by-step 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 = <strong>90.09</strong>`