Value the shares of subject-company as at the end of 2019 using the income approach by discounting
Question:
Value the shares of subject-company as at the end of 2019 using the income approach by discounting the stream of Net Free Cash Flow to Invested Capital Benefits. Round to the nearest whole cent (i.e. $12.9876 would be written as 12.99). State on a per share basis. Use the mid-year discounting rule.
Assume the seed value to the perpetuity beginning in 2024 is Free Cash Flow to Invested Capital = 62,180 and that the perpetuity growth rate will be 3.7% annually. Cost of Equity is 10.18% and WACC is 8.14%. The appropriate tax rate for this problem is 25.50%. Shares outstanding at the valuation date equals 6,557. Assume the market value of interest bearing liabilities is $16,664 at the end of 2019. Also assume MVIC using End of Year discounting in December 31, 2019 dollars would equal $1,186,579.45.
Investment Analysis and Portfolio Management
ISBN: 978-1305262997
11th Edition
Authors: Frank K. Reilly, Keith C. Brown, Sanford J. Leeds