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Homework answers / question archive / A company had free-cash-flows of $16,744
A company had free-cash-flows of $16,744.50 in millions in the past year and has expected growth rate of 1.80% in the next year, 1.20% in the second year, 4.10% in the third year and 1.00% in the fourth year. Finally the firm expects the growth to become 2.60% long-term thereafter. Given that the weighted average cost of capital (WACC) for the firm is 14.85%, what is the expected firm value and share price if there are 5,246,000 shares outstanding? (Hint: use Discounted Free-Cash Flows model)
a. The market value of the firm is: $137,550.81 and the share price is $0.03.
b. The market value of the firm is: $136,563.14 and the share price is $0.03.
c. The market value of the firm is: $130,658.98 and the share price is $0.02.
d. The market value of the firm is: $145,272.92 and the share price is $0.03.
Answer : Correct Option is (a.) The market value of the firm is: $137,550.81 and the share price is $0.03.
Below is the table showing calculation of Present Value of Free Cash Flows
| Year | Cash Flows | PVF @14.85% | Present Value of Cash Flows |
| 0 | 16744.5 | 1 | - |
| 1 | 17045.901 | 0.871 | 14846.97977 |
| 2 | 17250.4518 | 0.758 | 13075.84247 |
| 3 | 17957.7203 | 0.66 | 11852.09542 |
| 4 | 18137.2975 | 0.575 | 10428.94609 |
| 4 (Working Note) | 151909.121 | 0.575 | 87347.74436 |
| Total | 137551 |
The value of Firm is $137550.81 or 137551
Share Price = 137550.81 million / 5246000
= $0.03
Working Note :
Termina Value = [18137. 2975 * (1 + 0.026)] / [0.1485 - 0.026]
= 18608.8672 / 0.1225
= 151909.121
