Question

IDX Technologies is a privately held developer of advanced security systems based in Chicago. As part of your business development​ strategy, in late 2013 you initiate discussions with​ IDX's founder about the possibility of acquiring the business at the end of 2013. Estimate the value of IDX per share using a discounted FCF approach and the following​ data: bullet ​Debt: $ 40 million bullet Excess​ cash: $ 108 million bullet Shares​ outstanding: 50 million bullet Expected FCF in​ 2014: $ 49 million bullet Expected FCF in​ 2015: $ 51 million bullet Future FCF growth rate beyond​ 2015: 4 % bullet ​Weighted-average cost of​ capital: 9.4 %

Answer 1

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Step-by-step explanation:

(Kindly note: all numbers in millions)

Discounted Cash Flow valuation of company's operating assets as of 2013 year end= PV of FCF in Yr 2014+Terminal FCF in Yr 2015*(1+Terminal growth rate)/(WACC-Terminal growth Rate)

=49/1.094+51*1.05/(0.094-0.05)

44.79+44.79/0.044

=1062.69

Firm equity value= Value of net operating assets+Cash-Debt=1062.69+108-40=1130.69

Value of IDX per share=Firm equity value/No of shares outstanding=1130.69/50=22.61