Based on the information provided, calculate the intrinsic value in 2004 of a share of INV Corp. using the FCFF (free cash flow to the firm) model. For 2009 the FCFF was $30,000, total debt was $20,000, and there were 12000 shares outstanding. The required rate of return is 9% and the estimated growth rate in FCFF is 6.5%.
A) $104.83
B) $153.25
C) $112.50
D) $94.92
E) $80.45

Question

Quizplus · Accepted Answer

To calculate the intrinsic value of a share using the FCFF model, we use 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 given. Plugging in the values: (30,000 * (1 + 0.065)) / (0.09 - 0.065) - (20,000 / 12,000) = $104.83 per share.

Based on the Information Provided, Calculate the Intrinsic Value in 2004