An asset manager is making the valuation exercise of Uppy equity shares. The asset manager's estimation...

 

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An asset manager is making the valuation exercise of "Uppy" equity shares. The asset manager's estimation of the Free Cash Flow to Firm (FCF) for the period 2021-2025 is illustrated in Table 2. Table 2 Year 2021 2022 2023 2024 2025 FCF (€) 52,000 53,420 55,230 56,020 57,500 The target capital structure is 55% equity and 45% debt. The estimated cost of equity and estimated cost of debt (gross of taxes) are 8.2% and 5%, respectively. The estimated corporate tax rate is 25%. The FCF is expected to grow at an annual nominal rate of 1.75% in perpetuity. a) Calculate the expected Enterprise Value of Uppy at the end of the year 2021. Discuss your answer. [10 marks] b) At the end of the year 2021, the company is expected to have (i) interest-bearing debt of €950,000, (ii) cash and equivalents of €1,025,000, (i) minority interest of €300,000, (iv) €425,000 of financial investments, and (v) 150,000 outstanding shares. The current market price of Uppy is €12 per share. Compute the expected equity value per share at the end of the year 2021 (round to zero decimals), and based on it, provide your investment recommendation. Explain your answer. [10 marks] [Hint: to answer the questions make plausible assumptions if necessary. Additionally, if necessary, you can use standard characters to write your answers (e.g. b rather than B, capital_sigma rather than E, and sigma rather than o)] An asset manager is making the valuation exercise of "Uppy" equity shares. The asset manager's estimation of the Free Cash Flow to Firm (FCF) for the period 2021-2025 is illustrated in Table 2. Table 2 Year 2021 2022 2023 2024 2025 FCF (€) 52,000 53,420 55,230 56,020 57,500 The target capital structure is 55% equity and 45% debt. The estimated cost of equity and estimated cost of debt (gross of taxes) are 8.2% and 5%, respectively. The estimated corporate tax rate is 25%. The FCF is expected to grow at an annual nominal rate of 1.75% in perpetuity. a) Calculate the expected Enterprise Value of Uppy at the end of the year 2021. Discuss your answer. [10 marks] b) At the end of the year 2021, the company is expected to have (i) interest-bearing debt of €950,000, (ii) cash and equivalents of €1,025,000, (i) minority interest of €300,000, (iv) €425,000 of financial investments, and (v) 150,000 outstanding shares. The current market price of Uppy is €12 per share. Compute the expected equity value per share at the end of the year 2021 (round to zero decimals), and based on it, provide your investment recommendation. Explain your answer. [10 marks] [Hint: to answer the questions make plausible assumptions if necessary. Additionally, if necessary, you can use standard characters to write your answers (e.g. b rather than B, capital_sigma rather than E, and sigma rather than o)]

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