Conundrum Mining is expected to generate the above free cash flows over the next four years, after which they are expected to grow at a rate of 5% per year. If the weighted average cost of capital is 11% and Conundrum has cash of $85 million, debt of $65 million, and 30 million shares outstanding, what is Conundrum's expected current share price?

Question

Quizplus · Accepted Answer

A) FCF5 = $26 million × (1 + 0.05) = $27.3 million; V4 = $27.3 million / (0.11 - 0.05 11eaabab_c08e_e9da_b90e_73b94e71735b_TB5536_11 using a financial calculator, V0 = $358.36 million;
P0 = (358.36 + 85 - 65) / 30 = $12.61

Conundrum Mining Is Expected to Generate the Above Free Cash