You Name, 1) Use the below date and the simple FCFF model to estimate the volue
ID: 2824736 • Letter: Y
Question
You Name, 1) Use the below date and the simple FCFF model to estimate the volue per share of Exson Alobi ticker XOMV-Note: Not all iformotion may be needed for the solution. Show aa work ?stimated 2019 sales will be S302Baon and operating margin is expected to be 6% You expected FCFF togow at 4% into future. The tax rate for XOM is 35% You expected no change in net working capital, capital expenditures of $15 biltion, and depreciation expense of $19 billion in cash and total corporate debt of $40.1 billion. The company has 4.23 billion shares outstanding The yield on the 10 year Treasury bond is 2.85% and the expected return on the beta of .82. The WACCfor Exxon Mobil is 860% a6 points) for 2019. Exxon Mobil has $4 Billion market is 5%. Exxon has a
Explanation / Answer
Objective
Value Per Share =Value of Equity / Number of Shares Outstanding
Value of Equity = Value of Firm - Value of Debt
Value of Firm = Free Cash Flows X ( 1+ Growth rate ) / ( Weighted Average Cost of Capital - Growth rate )
Free Cash Flows = Net Income + Non- Cash Charges + Int X ( 1- tax rate ) - Capital Expenditures - Working Capital Investment
Weighted Average Cost of Capital
= Cost of Equity X Weight of Equity + Cost of Debt ( 1- Tax Rate ) X Weight of Debt
Cost of Equity = Risk Free Interest Rate + Beta X (Market return- Risk Free Return )
= 2.85 % + 0.82 X ( 5% -2.82% )
= 4.613%
Cost of Debt is Not given Even to calculate from reverese calculation weight of Equity and Debt is required.
1. Net Income = Expected Sales X Operating Margin
= $ 302 B x 6 %
= $ 18.12 Billion
2. Non-Cash Charges = Depreciation Expense = $ 19 Billion
3. Interest ( 1- Tax Rate ) = Assumed to cover in Operating marging since no cost of debt is given, Even to calculate from WACC Value of Equity is not given
4. Capital Expenditure = $ 15 Billion
5. Thus ,
Free Cash Flows = Net Income + Non- Cash Charges + Int X ( 1- tax rate ) - Capital Expenditures - Working Capital Investment
= $ 18.12 + 19 + 0 -15-0
= $ 22.12 Billion
Value of Firm = Free Cash Flows X ( 1+ Growth rate ) / ( Weighted Average Cost of Capital - Growth rate )
= $ 22.12 X ( 1+0.04 ) / (0.086-0.04)
= $ 500.10 Billion
Value of Equity = Value of Firm - Value of Debt
= $ 500.10 - 40.1
= $ 460 Billion
Value Per Share =Value of Equity / Number of Shares Outstanding
= $ 460 Billion / 4.23 Billion
= $ 108.74
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