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TRX Corporation is expected to generate free cash flows (FCF) of $5
TRX Corporation is expected to generate free cash flows (FCF) of $5.98 million in year 1, $8.46 million in year 2, $12.41 million in year 3, and $14.27 million in year 4. After then, the FCF will grow by 3% per year. TRX has 8 million shares outstanding, $4 million in excess cash, and it has $1 million in debt. If its cost of capital is 9%, the stock price would be $________? Input your answer without the $ sign and round your answer to two decimal places
Expert Solution
Terminal value= V4= FCF in year 5/(Required rate-growth rate)
=CF5/(k-g)
= 14.27*103%/(9%-3%)
= 244.9683333 million
Value of the cash flows= CF1/(1+r)^1+……CFn/(1+r)^n
= 5.98/1.09^1+8.46/1.09^2+12.41/1.09^3 +(14.27+244.9683333)/1.09^4
=205.8406192 million
Market cap= Total value- (Debt-Cash and equivalents)
=205.8406192- (1-4)
= 208.8406192 million
Value of share= Market cap/ Number of shares
= 208.8406192/8
= $26.11
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