Liberal Holdings (LH) is privately held technology company based in southwest Kansas

Accounting Dec 01, 2020

Liberal Holdings (LH) is privately held technology company based in southwest Kansas. You are in discussions to potentially acquire LH at the end of the year. Estimate the value of LH per share using a discounted FCF approach and the following data: • Debt: $40 million • Excess cash: $12 million • Shares outstanding: 5 million • Expected FCF: $4.5 million in each of the next eight years, growing after that by 4.5 percent per year for the foreseeable future • Weighted average cost of capital: 15 percent

Expert Solution

Value of Equity = Value of Company - Value of Debt

= ($34.83 millions+$12 millions) - $40 millions

= $46.83 millions - $40 millions

Value of Equity = 6.83 millions

Value of LH per Share = Value of Equity / Shares Outstanding

= $6.83 millions / 5 millions

Value of LH per Share = $1.37

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