Given are the following data for Outsource Company: PV (of FCFs for years 1-3)= $35 million; PV (horizon value)= $65 million. Suppose that the market value of the debt = $30 million and the number of shares outstanding = 5 million. Calculate the share price.
A)$20
B)$14
C)$13
D)$6

Question

Quizplus · Accepted Answer

To calculate the share price, we need to add the PV of FCFs to the horizon value, and then subtract the market value of debt. Then divide the result by the number of shares outstanding.

PV of FCFs + PV of Horizon value - Market value of debt = Total firm value

$35 million + $65 million - $30 million = $70 million

Share price = Total firm value / Number of shares outstanding

Share price = $70 million / 5 million = $14

Given Are the Following Data for Outsource Company: PV (Of