Question

You must estimate the intrinsic value of Noe Technologies' stock. The end-of-year free cash flow (FCF1) is expected to be $27.50 million, and it is expected to grow at a constant rate of 7.0% a year thereafter. The company's WACC is 10.0%, it has $125.0 million of long-term debt plus preferred stock outstanding, and there are 15.0 million shares of common stock outstanding. What is the firm's estimated intrinsic value per share of common stock?

Answer 1

$52.78

Step-by-step explanation:

For computing the intrinsic value first we have to determine the total value of common stock which is shown below:

Total Value of common stock is

= Free cash flow ÷ WACC - g

= $27.5 M ÷ ( 0.10 - 0.07)

= $916.67 Million

Now

Intrinsic value per share is

= (Total value of common stock - long term debt plus preferred stock outstanding) ÷ shares of common stock outstanding

= ($916.67 million - 125 million) ÷ 15.0 million

= $52.78