SHOW YOUR WORK! NO WORK SHOW IS ZERO POINT EVEN IF THE FINAL ANSWER IS CORRECT!

QUESTION 3 STOCK VALUATION, ENTERPRISE VALUE (25 POINTS)

Part a. Your company is expected to produce the following firm free cash flow over the next 3 years:

	Year 1	Year 2	Year 3
Firm FCF	500	600	900

Thereafter (after year 3), the free cash flow is expected to grow at a rate of 3% per year in perpetuity. Assuming the weighted average cost of capital is 12% per year, what is your companys enterprise value today, year=0? [10 points]

Enterprise Value is $ ______________________[Round to the nearest million]

Part b. Enterprise value of your company is estimated to be $500 million. Upon inspection of financial records, you discover a current cash balance of $25 million, total debt of $175 million, and 10 million shares outstanding. Given this information, what is your estimate of your companys stock price per share? [7 points]

The share price is __________________[Round to the nearest cent]

Part c. You are trying to value a share of ABC Corp stock. In your analysis of similar companies, you have uncovered the following information: [8 points]

	Company A	Company B	Company C
Earnings per share	$1.70	$2.50	$3.40
Stock price per share	$17.00	$25.00	$34.00

1. What is the average P/E multiple of Company A, Company B and Company C ? [4 points]

P/E of Company A is _____________________

P/E of Company B is ______________________

P/E of Company C is ______________________

The average P/E multiple of Company A, Company B and Company C is __________

1. ABC Corp has Earnings per share of $3.00. What is your estimate of ABC Corps stock price per share based on the average P/E multiple of these three companies? [4 points]

The share price is __________________[Round to the nearest cent]