You are performing a valuation of an IT firm based on free cash flow to the firm (FCFF). FCFF in the most recent 12 months (year 0) was 23.7 million. The firm is in a growing industry. As a result, you expect cash flows to grow at an annual rate of 20% for the next five years and then decrease to 5% per year in perpetuity thereafter. The firm's WACC is 8%. The firm also has a debt with a book value of 450 million and a market value of $400 million.
a) What is the value of the firm based on the discounted value of FCFF?
b) If the firm has 12 million shares outstanding, what is your estimate of the equity value per share if the market price of $92 per share, should you buy or sell the stock?