Mini case attachment:
You are an investment banker and are asked to estimate the value of a company that is considering going public with an initial 6 million shares. The following information is reported to you to conduct a company valuation.
FCF0 = $13 million
WACC =9%
FCF is expected to grow at a constant rate of gL = 3%
Short-term investments = $75 million
Debt = $120 million
Preferred stock = $35 million
Number of shares =n = 6 million
Use the information to answer the following questions posed by the company’s owners:
What is the estimated value of operations?
What is the estimated total corporate value? (entity value)
What is the estimated intrinsic value of equity?
What is the estimated intrinsic stock price per share?
The company owners also have additional questions about using the FCF model to value the company and stockholders’ rights:
What legal rights and privileges do preferred stockholders have?
What legal rights and privileges do common stockholders have?
In your opinion which type of stock is better for the company (common or preferred)? Explain why.
In your opinion which type of capital source is better for the company (equity or debt)? Explain why.
Describe the FCF valuation model you used in the valuation?
Show all your calculations, write in complete sentences, cite your sources.
