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 three years: Year 1 2 3 FCF ($ million) 22 41 52 Thereafter, the free cash flows are expected to grow at the industry average of 4.2 % per year, using the discounted free cash flow model and a weighted average cost of capital of 13.2 % : a. Estimate the enterprise value of Heavy Metal. b. If Heavy Metal has no excess cash, debt of $ 293 million, and 39 million shares outstanding, estimate its share price. a. Estimate the enterprise value of Heavy Metal. The enterprise value will be $million. (Round to two decimal places.) b. If Heavy Metal has no excess cash, debt of $ 293 million, and 39 million shares outstanding, estimate its share price.The stock price per share will be(Round to the nearest cent.)

Explanation / Answer

(a).

Enterprise value of Heavy Metal Corporation = $502.31 million

Explanation;

First of all let’s calculate terminal value;

Terminal value = ($52 * 1.042) / (13.2% - 4.2%)

Terminal value = $54.184 / 9%

Terminal value = $602.04 Million

Now, let’s calculate enterprise value;

($22 / 1.132) + ($41 / 1.132^2) + ($654.04 / 1.132^3)

= $19.43 + $32 + $450.88

= $502.31 million

(b).

Stock price per share = $5.37 (Approx.)

Explanation;

Stock price per share =

(Enterprise value + Cash – Debt) / Outstanding shares

Stock price per share = ($502.31 + $0 - $293) / 39

Stock price per share = $209.31 / 39

Stock price per share = $5.37 (Approx.)

Related Questions

Navigate

• Browse (All)
• Browse H
• Subjects

---

---

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