Question
The following table lists the Income statement and Balance sheet for First American Furniture Company Income Statement 2017 2018 Revenue $516 $630 Depreciation 30 35
The following table lists the Income statement and Balance sheet for First American Furniture Company
Income Statement | 2017 | 2018 |
Revenue | $516 | $630 |
Depreciation | 30 | 35 |
Other operating costs | 400 | 480 |
Income before taxes | 86 | 115 |
Taxes | 30 | 40 |
Net income | 56 | 75 |
Dividends | 20 | 26 |
Earnings per share | 0.56 | 0.75 |
Dividend per share | 0.2 | 0.26 |
Common shares outstanding (millions) | 100 | 100 |
Balance Sheet | 2017 | 2018 |
Current assets | $350 | $420 |
Net property, plant, and equipment | 500 | 520 |
Total assets | $850 | $940 |
Current liabilities | 130 | 150 |
Long-term debt | 50 | 80 |
Total liabilities | $180 | $230 |
Shareholders equity | $670 | $710 |
Total liabilities and equity | $850 | $940 |
Capital expenditures | 45 | 50 |
NWC | $220 | $270 |
You are a financial analyst at RBC. Using the data above, you want to determine the value of First American Banks stock using the Free Cash Flow to Equity (FCFE) model. You believe that the companys FCFE will grow at 40% for three years and 14% thereafter. Capital expenditures, depreciation, working capital, and net debt are all expected to increase proportionately with FCFE. The required rate of return on equity is 15%.
a. Calculate the amount of FCFE per share for the year 2018.(sample answer: $5.15) b. Calculate Projected 2021 terminal value per share based on constant growth of 14% (sample answer: $25.15) c. Calculate the current value of a share of the stock based on the two-stage FCFE model. (sample answer: $25.15)
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