You have been asked to value a company using the FCF method. The free cash flow last year for the company was $20 million. Free cash flow for next year expected to be -$20 million. The following year you expect is to be $15 million. Then you project the cash flows will grow at 15.00% for the following three years and slow to a sustainable growth rate of 5.00% thereafter.
1. You have been asked to value the horizon value (continuing value) two ways. The first is the perpetuity method. The second is using a multiple of EV/FCF of 12.0 times. What are the two values you get for the operations of the firm?
2. The firm has 5 million shares outstanding and cash of $50 million. In addition the firm has a par value of bonds outstanding of $25 million that have a coupon rate of 4.00%, a maturity of 5 years, a yield to maturity of 4.25%. What would be the two values for the share price? Note the firm WACC is 10%.