Question

A stock has no dividends. The last period's FCFF is $4.98 and it has an estimated annual free cash flow growth rate of 8%. The WACC for this stock is 8.3% and its long term growth rate is 2.46%. It also has an ROE of 12.4%. You also found out that the firm has debt per share of $25.61. What it the estimated intrinsic value using the constant state FCFF method

Answer 1

The estimated intrinsic value is $92.10

Step-by-step explanation:

As per given data

FCFF = $4.98

Annual Free cash flow growth = 8%

WACC = Required rate od return = 8.3%

Long term growth rate = 2.46%

ROE = 12.4%

Use following formula to calculate the Intrinsic value

Intrinsic value = FCFF x ( 1 + Annual Free cash flow growth ) / ( WACC - Long term growth rate )

Placing values in the formula

Intrinsic value = $4.98 x ( 1 + 8% ) / ( 8.3% - 2.46% )

Intrinsic value = $92.10