Balance sheet as of December 31t,.. Income Statement for the year 2017 (in $ mil

Question

Balance sheet as of December 31t,.. Income Statement for the year 2017 (in $ millions) Cash A/R Inventories Current Assets 990 789 Curren Liab. 640 620 Operating Expenses 560 (in $ millions) 2012 2016 150 99 A/P 240 200 N/P 600 490 Accruals 2017 2016 280 260 Sales 360 360 COGS 0 2016 2,810 1,686 1,124 0 Gross profit L.T Debt Comm. Stock par 195 195 700 700 Depreciation expense 140 Gross Fixed Assets Accum. Depr. 1,400 1,260 Ret. Earnings 595 554 EBT Net fixed assets 1,440 1,580| Common Equity 1,090 1,049| Tax (40%) Total Assets 2.430 2.369 Total Liab, & Eq. 2.430 2,369 Net Income 424 80 344 138 206 EBIT 2.840 2,840 Paid-in capital 300 300 Interest expense Other information: Dividend payout ratio Number of shares outstanding Normal P/E ratio Normal P/CFPS ratio = 13 80% 150 million shares 16 Assuming we are at the beginning of 2018 and given the information above, what will be the price of the company stock using the FCFF model if the required return on the firm's assets is 12 and the free cash flows are expected to grow at 6% per year in perpetuity? (Assume that all liabilities shown above are at market values and no increases in fixed assets are required). 7.

Explanation / Answer

EBIT(2017) = $ 424 million, Tax Rate = 40 %, Depreciation Expense = $ 140 million

Capital Expenditure = $ 0 as the Gross Fixed Asset Value is same for 2016 and 2017

Changes in Net Working Capital (NWC) = [Current Assets (2017) - Current LIabilities(2017)] - [Current Assets(2016) - Current Laibilities(2016)] = [990 - 640] - [789-620] = $ 181 million

FCFF(2017) = EBIT x (1-tax rate) + Depreciation Expense - Capital Expenditure - Changes in NWC = 424 x (1-0.4) + 140 - 0 - 181 = $ 213.4 million

Perpetual FCFF Growth Rate = 6 % per annum and Required Return = 12 %

Intrinsic Firm Value = FCFF(2017) x 1.06 / 0.12 = $ 1885.033 million

Intrinsic Equity Value = 1885.033 - Long-Term Debt - Current Liabilities = 1885.033 - 700 - 640 = $ 545.033 million

Number of Shares Outstanding = 150 million

Intrinsic Stock Price = 545.033 / 150 = $ 3.63356

Related Questions

Navigate

• Browse (All)
• Browse B
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.