Question
It is January 2014. Google has offered to buy your internet startup. The Google negotiators and you both agree on the following expectations. Year Expected
It is January 2014. Google has offered to buy your internet startup. The Google negotiators and you both agree on the following expectations.
Year | Expected free cash flow to the firm (end of year) |
2014 | 120,000 |
2015 | 180,000 |
2016 | 270,000 |
2017 | 360,000 |
2018 | 450,000 |
After 2018, free cash flows are expected to grow by 3% per year. Based on the riskiness of your industry, you think that your weighted average cost of capital is 15%.
You have bank loans worth $400,000 outstanding.
a) What is the terminal value, i.e., the present value of all free cash flows from 2019 to infinity expressed in 2018-dollars?
b) What is the total value of the company?
c) What is the value per share of common stock if you have 100,000 shares outstanding?
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