WWA is looking at one of their subsidiaries, Gossamer Glue Company, which has ru
ID: 2573236 • Letter: W
Question
WWA is looking at one of their subsidiaries, Gossamer Glue Company, which has run into difficulties. There have been technological innovations in both products and process that GGC presently does not have access to. The finance team has ascertained the following values:
Provide Excel formulas for all calculations
c. If new technology is introduced now, Gossamer is expecting free cash flows to increase by 5% per year beginning this year. The new technology would add $10 million to the firm's debt stated above. Calculate the intrinsic value of the company and the per share value of the stock. (Hint: Constant Growth free cash flows.)
Free Cash Flows this year $12,247,000 WACC Debt Value Short-term Investments Value $1,000,000 Preferred Stock Value 10.25% $25,000,000 $6,000,000 2,800,000 Number of SharesExplanation / Answer
Value of company =FCF0(1+g)/(WACC-G)
= 12,247,000(1+.05)/(.1025-.05)
= 12,247,000*1.05 /.0525)
= $ 244,940,000
Total Debt 25,000,000+10,000,000 = $ 35,000,000
Value of equity = Total firm value -value of debt -value of preferred stock
= 244,940,000-35,000,000-6,000,000
= 203,940,000
Intrinsic value per share = Value of equity /shares outstanding
= 203,940,000/2,800,000
= $ 72.84 per share
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