Based on the information provided, calculate the intrinsic value in 2010 of a share of INV Corp. using the FCFF (free cash flow to the firm) model. For 2010 the FCFF was $30,000, total debt was $20,000, and there were 12000 shares outstanding. The required rate of return is 9 percent, and the estimated growth rate in FCFF is 6.5 percent.

Question

Quizplus · Accepted Answer

The intrinsic value of a share using the FCFF model can be calculated using the formula: Value per share = (FCFF * (1 + g)) / (r - g) - (Debt / Shares Outstanding), where FCFF is the free cash flow to the firm, g is the growth rate, r is the required rate of return, and Debt and Shares Outstanding are as stated. Plugging in the values: Value per share = ($30,000 * (1 + 0.065)) / (0.09 - 0.065) - ($20,000 / 12,000) = $31,950 / 0.025 - $1.67 = $1,278,000 / 12,000 - $1.67 = $106.50 - $1.67 = $104.83.

Based on the Information Provided, Calculate the Intrinsic Value in 2010