Sixty Second Avenue Inc. has an expected net operating profit after taxes, EBIT(

Question

Sixty Second Avenue Inc. has an expected net operating profit after taxes, EBIT(1 - T), of $1,100 million in the coming year. In addition, the firm is expected to have net capital expenditures of $165 million, and net operating working capital (NOWC) is expected to increase by $30 million. How much free cash flow (FCF) is Sixty Second Avenue Inc. expected to generate over the next year? $21,730 million $905 million $1,235 million $965 million Sixty Second Avenue Inc.'s FCFs are expected to grow at a constant rate of 3.54% per year in the future. The market value of Sixty Second Avenue Inc.'s outstanding debt is $5,752 million, and preferred stocks' value is $3,196 million. Sixty Second Avenue Inc. has 450 million shares of common stock outstanding, and its weighted average cost of capital (WACC) equals 10.62%. Using the preceding information and the FCF you calculated in the previous question, calculate the appropriate values in this table. If Sixty Second Avenue Inc. also had $237 million in marketable securities on its balance sheet, the intrinsic value per share would be_______.

Explanation / Answer

Fcf is ebit (1-tax) - change in net working capital -capital expenditure

= 1100-165-30=905$ millions

As per divedend discount model, we have

905/(10.62%-3.54%) i.e fcf/ (wacc - growth rate)

905/0.0708= 12,782.49

Vslue of equity is value of firm - debt - prefered stock = 12,782.49 - 5752 -3196 = 3834.49

Value per share is 3834.49/450 = 8.52

If it had 237 million marketible securities we will substract this from value of equity

3834.49 - 237 / 450 = 7.99$

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