Suppose that you are an analyst and want to estimate the value of firm XYZ Inc using a 2-stage DCF. For the high growth period (which you assume to be 5 years) your estimates of after-tax operating income and free cash flows are the following (in millions):

Year

0

1

2

3

4

5

EBIT (1-T)

100

105

110

116

122

128

FCFF

25

26

28

29

30

32

Your expect the company to maintain the same ROC for the next 5 years (i.e. during the high growth period). Afterwards, you expect a 2% growth rate forever.

In addition, you estimate the firms cost of capital of the company to be 8% during the high growth rate phase and 6% in the steady state (i.e. constant growth period). During the steady state you estimate the ROC to be 4%.

Finally XYZ Inc has $60m in cash, $150m of debt outstanding and 50m of common shares outstanding.

Assume that all your colleagues estimates are correct.

(1.5 points) Compute the ROC of the company during the high growth rate stage? (1.5 point) Estimate the TV at t=5. (1 point) Estimate the value of the firm at t=0 (i.e. today). (1 point) What is the price per share implied by your estimation?