VALUING HOUDA MG MC 23,000,000 Base year FCF High growth rate, Gnigh Normal growth rate, Gnormal Number of high growth years Term 1 factor: (1+gnigh)/(1+WACC) 25% 7% 10 WACC Debt Cash 18% 0 0 Term 1: PV of high-growth cash flows Term 2: PV of normal-growth cash flows Enterprise value Add cash Subtract debt Value of equity 100,000,000 Number of shares, end 2003 Share value Section b. If cash flows occur in mid-year, then: Value of equity Share value Houda Motors has a just announced results that show that the FCF for the past year is $23 million. An experienced analyst beleives that the growth rate of the FCF for the next year 10 years will be 25% per year and that after 10 years the growth rate will be 7% annually. Houda's WACC is 18%, and the company has 100 million shares iutstanding. a. Value the shares assuming that the FCFs occur at year-end. Houda has no debt and no excess cash reserves. b. Suppose that the FCFs occur in mid-year. What would your answer be now