The value of each share can be calculated using the discounted cash flow (DCF) method. To do this, we need to calculate the present value of the projected cash flows.
Step 1: Calculate the present value of the cash flows
- The cash flow for the first year is $25 million.
- The cash flow for the second year is $27 million.
- The cash flows from year 3 onwards are growing at a stable rate of 1.8% in perpetuity.
To calculate the present value, we use the formula:
PV = CF / (1 + r)^n
where PV is the present value, CF is the cash flow, r is the discount rate (cost of capital), and n is the time period.
Using this formula, we calculate the present value of the cash flows as follows:
PV1 = $25 million / (1 + 0.127)^1 = $22.12 million
PV2 = $27 million / (1 + 0.127)^2 = $22.75 million
PV3 onwards = $27 million * (1 + 0.018) / (0.127 - 0.018) = $303.55 million
Step 2: Calculate the total present value
Total present value = PV1 + PV2 + PV3 onwards = $22.12 million + $22.75 million + $303.55 million = $348.42 million
Step 3: Deduct the net debt from the total present value
Net debt = Total debt - Cash = $51 million - $16 million = $35 million
Total equity value = Total present value - Net debt = $348.42 million - $35 million = $313.42 million
Step 4: Calculate the value per share
Value per share = Total equity value / Number of shares = $313.42 million / 15 million shares ≈ $20.89
Therefore, each share is worth approximately $20.89.
It's important to note that this calculation is based on certain assumptions and projections, and it represents an estimation of the value per share. The actual value may differ due to various factors and market conditions.
Answer in 200 words