Question

Scampini Technologies is expected to generate $150 million in free cash flow next year, and FCF is expected to grow at a constant rate of 4% per year indefinitely. Scampini has no debt, preferred stock, or non-operating assets, and its WACC is 11%. If Scampini has 60 million shares of stock outstanding, what is the stock's value per share? Do not round intermediate calculations. Round your answer to the nearest cent. Each share of common stock is worth $ 35.7 , according to the corporate valuation model.

Answer 1

$37.14 price per share

Step-by-step explanation:

FCF x (1+g) = FCF1 = 150 x 1.04 = 156

We use the gordon model but instead of dividends we use the free cash flow for the firm.

Like dividend growth model, we need to use the next year value

`FCF *  (1+g) = FCF_1`

150 x 1.04 = 156

`(FCF_1)/(WACC-growth) = Firm \: Value`

156/(0.11-0.04) = 2228.571429 (millions)

Then we divide the valuation by the outstanding shares:

2228.571429/60 = $37.14 price per share