Question
Acumen Corp. had the following financial information for 2019, and they have projected the following rates for future growth and valuation multiples for equity: 2019
- Acumen Corp. had the following financial information for 2019, and they have projected the following rates for future growth and valuation multiples for equity:
| 2019 Total Assets | $8,000,000 |
| 2019 Net Income | $4,600,000 |
| 2019 Depreciation | $450,000 |
| 2019 Cash flow Plowback | $360,000 |
| Shares outstanding | 3,000,000 |
| Net Income growth, 2020 2021 | 7.0% |
| Cash flow Plowback growth, 2020 2021 | 4.0% |
| Depreciation growth, 2020 2021 | 4.0% |
| Constant growth in FCFE beyond 2021 | 5.0% |
| Growth in Total Assets | 6.0% |
| Risk-free rate | 4.8% |
| Market risk premium | 4.0% |
| Beta coefficient | 0.80 |
| Debt Ratio | 40% |
| Equity value as a multiple of FCFE | 32.0 |
| Equity value as a multiple of book value | 30.0 |
- Estimate FCFE for Acumen Corp. from 2020 to 2021.
- What is the appropriate discount rate to apply to the cash flows developed above?
- What is the terminal value of Acumen stock in 2021, i.e., what is the 2021 value of the cash flows Acumen is expected to generate beyond 2021?
- What is the intrinsic value of Acumen stock as of year-end 2019 using the DCF method?
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Advanced Accounting
Authors: Joe Hoyle, Thomas Schaefer, Timothy Doupnik
10th edition
0-07-794127-6, 978-0-07-79412, 978-0077431808
