You are working on the valuation for an upcoming IPO. The company that wants to

Question

You are working on the valuation for an upcoming IPO. The company that wants to sell its stock expects the following future free cash flows (FCF, in millions of dollars): -7 in year 1, 7 in year 2, 15 in year 3, and cash flows are expected to grow steadily at 4.4% after year 3. The discount rate for this company is 11%, and it plans to sell 14 million shares. What should be the price per share? Enter your answer in terms of dollars, rounded to cents (maximum of 2 decimals), and without the dollar ($) sign. If your answer is $25.43 (25 dollars and 43 cents), then enter 25.43

Explanation / Answer

Value of Firm = FCF1/(1+Discount rate) + FCF2/(1+Discount rate)^2 + FCF3/(1+Discount rate)^3   + (FCF4/(Discount Rate-growth rate))/(1+Discount rate)^3

Value of Firm = -7/1.11 + 7/1.11^2 + 15/1.11^3+ (15*1.044/(11%-4.4%))/1.11^3

Value of Firm = $ 183.8347 Million

Price per share = Value of Firm/Outstanding Share

Price per share = 183.8347 /14

Price per share = $ 13.13

Answer

13.13

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