SI International had a FCFE of $122.1M last year and has 12.43M shares outstanding.SI's required return on equity is 11.3% and WACC is 9.8%.If FCFE is expected to grow at 7.0% forever,the intrinsic value of SI's shares are ____________.
A)$108.00
B)$68.29
C)$244.42
D)$14.76
E)none of the above

Question

Quizplus · Accepted Answer

To calculate the intrinsic value of SI's shares, we can use the Gordon Growth Model:

Intrinsic value = FCFE / (required return on equity - growth rate of FCFE)

Plugging in the numbers:

Intrinsic value = $122.1M / (11.3% - 7.0%) = $244.42

Since there are 12.43M shares outstanding, the intrinsic value per share is:

Intrinsic value per share = $244.42 / 12.43M = $19.66

Since the current market price is not given, it is not possible to determine whether the shares are undervalued or overvalued.

SI International Had a FCFE of $122