Heavy Metal Corporation is expected to generate the following free cash flows ov

Question

Heavy Metal Corporation is expected to generate the following free cash flows over the next five years: Thereafter, the free cash flows are expected to grow at the industry average of 4. 4% per year. Using the discounted free cash flow model and a weighted average cost of capital of 13. 6%: Estimate the enterprise value of Heavy Metal. If Heavy Metal has no excess cash, debt of $304 million, and 41 million shares outstanding, estimate its share price. Estimate the enterprise value of Heavy Metal. The enterprise value will be $ million. (Round to two decimal places.) If Heavy Metal has no excess cash, debt of $304 million, and 41 million shares outstanding, estimate its share price. The stock price per share will be $. (Round to the nearest cent.)

Explanation / Answer

a. enterprise value= 52.1 /(1.136)^1 + 68.6/(1.136)^2 + 78.3/(1.136)^3+74.4/(1.136)^4+81.1/(1.136)^5 + ((81.1*(1.044))/(0.136-0.044))/(1.136)^5

Enterprise value = $726.43 million

b. enterprise value = market capitalization + debt - excess cash

$726.43 = market caitalization + 304

Market capitalization = $422.43

b . price = 422.43 / 41 = $10.30

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