Question

si international had a fcfe of $1.5 billion last year and has 100 million shares outstanding. si's required return on equity is 11%, and wacc is 9%. if fcfe is expected to grow at 6.0% forever, the intrinsic value of si's shares is .

Answer 1

Using the Gordon Growth Model and given data, the intrinsic value of SI International's shares is calculated to be $300 per share based on their FCFE, expected growth rate, and required return on equity. Therefore, the intrinsic value of SI International's shares is $300 per share.

Step-by-step explanation:

To calculate the intrinsic value of SI International's shares using the Free Cash Flow to Equity (FCFE) valuation model, we need to apply the Gordon Growth Model (a variation of the Dividend Discount Model that can be used for FCFE). The formula to calculate the intrinsic value per share is as follows: Value per share = FCFE per share / (required return on equity - growth rate).

Given that SI International had a FCFE of $1.5 billion last year and has 100 million shares outstanding, the FCFE per share is $15 ($1.5 billion / 100 million shares).

The company's required return on equity is 11%, and the expected growth rate of the FCFE is 6%.

Using these figures, we can calculate the intrinsic value per share as follows: $15 / (0.11 - 0.06) = $300 per share. Therefore, the intrinsic value of SI International's shares is $300 per share.