You must estimate the intrinsic value of Noe Technologies' stock. The end-of-year free cash flow (FCF1) is expected to be $27.50 million, and it is expected to grow at a constant rate of 7.0% a year thereafter. The company's WACC is 10.0%, it has $125.0 million of long-term debt plus preferred stock outstanding, and there are 15.0 million shares of common stock outstanding. What is the firm's estimated intrinsic value per share of common stock?
A) $48.64
B) $50.67
C) $52.78
D) $54.89
E) $57.08

Question

Quizplus · Accepted Answer

Step 1: Calculate the enterprise value (EV)

EV = FCF1 / (WACC - g)
   = $27.50 million / (0.10 - 0.07)
   = $916.67 million

Step 2: Calculate the equity value

Equity value = EV - Debt - Preferred stock
                  = $916.67 million - $125.0 million
                  = $791.67 million

Step 3: Calculate intrinsic value per share

Intrinsic value per share = Equity value / Number of shares outstanding
                                         = $791.67 million / 15.0 million
                                         = $52.78

Therefore, the estimated intrinsic value per share of common stock is $52.78. Option C is the correct answer.

You Must Estimate the Intrinsic Value of Noe Technologies' Stock