Angel Enterprise was going public in 2018. You were wondering whether the $30 per share offer price
Question:
Angel Enterprise was going public in 2018. You were wondering whether the $30 per share offer price is a fair price. You decided to use discounted cash flow approach to value the company's stock. You gathered the following data:
Year | FCF | Other Data |
2019 | $600,000 | Growth rate of FCF beyond 2023 = 3% |
2020 | $900,000 | Weighted Average Cost of Capital (WACC) = 10% |
2021 | $1,400,000 | The firm has no debt |
2022 2023 | $1,800,000 $2,500,000 | Number of common shares outstanding = 1,000,000
|
a. Based on your valuation, what is the common stock per share? Is the stock worth buying?
b. What is the common stock per share if the terminal growth rate (growth rate beyond 2023) were 5% instead of 3%?
Financial Reporting And Analysis
ISBN: 9781260247848
8th Edition
Authors: Lawrence Revsine, Daniel Collins, Bruce Johnson, Fred Mittelstaedt, Leonard Soffer