FCF valuation model (like learned in Chapter 8 and used in Chapter 16).: Discount FCF at WACC and "back out" the equity value from the sources and uses of value (boxes!) Vop=t=1(1+WACC)tFCFt APV (adjusted present value) approach: Discount FCF and discount interest tax shield at unlevered cost of equity and "back out" the equity value from the sources and uses of value. Vblevered=t=1(1+rst)tFCFtrsv=w2rsL+wdrdTaxShield,=TaxRateInterestExpenserVop=VUnlevered+VTaxshield To compute the present value of ANY cash flows (CF) that begin growing at a constant rate g starting at time t discounted at rate r use the following: PVt=rgCFt(1+g)=rgCFt+1 Suppose the market value of a target company's stock is $41.74 per share. The potential acquiring firm uses the FCF valuation method to estimate the following information about the value of the target once synergies are accounted for: - Value of operations: $78,900 - Value of non-operating assets: $15,000 - Debt: $40,000 - Number of shares outstanding: $1,100 Calculate the intrinsic value of the potential target firm to determine which of the following would make a reasonable tender offer price for the target shareholders. $46.27 541.74 $71.72 $35.36