ABC Investment Bank is evaluating LaFurge Company, headquartered in Paris, France. In 2021, when ABC is performing
Question:
ABC Investment Bank is evaluating LaFurge Company, headquartered in Paris, France. In 2021, when ABC is performing the analysis, LaFurge is not profitable and it pays no dividends on its common shares. ABC decides to use the forecasts of the Free Cash Flows to the Equity to value LaFurge. To this end, the analyst makes the following assumptions:
LaFurge has 18 billion outstanding shares.
LaFurge’s sales in 2022 will be €6.5 billion and they expect to increase at 25% for the next four years (through 2026).
The Net Income is expected to be 32% of sales.
Investment in fixed assets is expected to be 36% of sales, investment in working capital 6% of sales, and depreciation 8% of sales.
The 20% of the investment in assets will be financed with debt.
Interest expenses will be 2% of sales.
The tax rate is 10%.
LaFurge’s beta is 2.1, the risk-free rate is 4.6%, and the equity risk premium is 4%.
At the end of 2026, ABC projects that LaFurge’s price will be 17 times its Net Income.
Estimate the value per share of the LaFurge Company.
Expert Answer:
According to the data Ang ABC investment Bank is evaluating Lafurge Cost of equity Rp Beta ... View the full answer
