Business, 25.04.2020 04:25 robert7248

Year 1 2 3 4 5 Free Cash Flow $22 million $24 million $29 million $32 million $35 million XYZ Industries is expected to generate the above free cash flows over the next five years, after which free cash flows are expected to grow at a rate of 2% per year. If the weighted average cost of capital is 7% and XYZ has cash of $14 million, debt of $40 million, and 78 million shares outstanding, what is General Industries' expected current share price

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Answer from: kotetravels10

The expected current share price is $7.66

Explanation:

According to the given data, we have the following:

FCF1 = $22 million

FCF2 = $24 million

FCF3 = $29 million

FCF4 = $32 million

FCF5 = $35 million

Growth Rate, g = 2%

WACC = 7%

In order to calculate the expected current share price we have to calculate first the following:

First, we have to calculate the FCF6 as follows:

FCF6 = FCF5 * (1 + g)

FCF6 = $35 million * 1.02

FCF6 = $35.70 million

Next, we have to calculate the Horizon Value of Firm as follows:

Horizon Value of Firm = FCF6 / (WACC - g)

Horizon Value of Firm = $35.70 million / (0.07 - 0.02)

Horizon Value of Firm = $714 million

Next, we have to calculate the Current Value of Firm as follows:

20,560,747+20,962,529+23,672,638+24,412,646+24,954,516+509,072,132

Current Value of Firm = $22 million / 1.07 + $24 million / 1.07^2 + $29 million / 1.07^3 + $32 million / 1.07^4 + $35 million / 1.07^5 + $714 million / 1.07^5

Current Value of Firm = $623.63 million

Next, we have to calculate the Value of Equity as follows:

Value of Equity = Current Value of Firm - Value of Debt + Value of Cash

Value of Equity = $623.63 million - $40.00 million + $14.00 million

Value of Equity = $597.63 million

Therefore, the Price per share = Value of Equity / Number of shares outstanding

Price per share = $597.63 million / 78 million

Price per share = $7.66

The expected current share price is $7.66

Answer from: skyhe34

Expected current share price = $7.66

Explanation:

Given Data:

Free Cash Flow(FCF1) = $22 million

FCF2 = $24 million

FCF3 = $29 million

FCF4 = $32 million

FCF5 = $35 million

grow rate (g) = 2%

cost of capital (r) =

XYZ cash = $14 million

XYZ debt = $40 million

Shares = 78 million

Calculating the current share price using the formula;

Share Price = Equity / No. of shares

Before substituting into the formula, the following are calculated;

Terminal Value in year 5, P5 = FCF5 x (1 + g) / (r - g)

= 35 x (1 + 2%) / (7% - 2%)

= $714 million

Present Value = FCF1 / (1 + r) + FCF2 / (1 + r)^2 + FCF3 / (1 + r)^3 + FCF4 / (1 + r)^4 + (FCF5 + P5) / (1 + r)^5

=22/ (1 + 7%) +24/(1 + 7%)^2 +29/(1 + 7%)^3 +32/(1 + 7%)^4 +(35 + 714)/(1+7%)^5

= 22 / 1.07 + 24 / 1.07^2 + 29 / 1.07^3 + 32 / 1.07^4 + (749) / 1.07^5

= 20.56 + 20.96 + 23.67 + 24.41 + 534.03

= $623.63 million

Equity Value = present value + Cash - Debt

= 623.63 + 14 - 40

= $597.63 million

Calculating the current share price, we have;

Share Price = Equity / No. of shares

= 597.63 / 78

= $7.66

Therefore, the general Industries' expected current share price = $7.66

Answer from: Quest

The business cycle is the periodic but irregular up-and-down movement in economic activity, measured by fluctuations in real gross domestic product (gdp) and other macroeconomic variables. a business cycle is typically characterized by four phases—recession, recovery, growth, and decline—that repeat themselves over time. economists note, however, that complete business cycles vary in length. the duration of business cycles can be anywhere from about two to twelve years, with most cycles averaging six years in length. some business analysts use the business cycle model and terminology to study and explain fluctuations in business inventory and other individual elements of corporate operations. but the term "business cycle" is still primarily associated with larger (industry-wide, regional, national, or even international) business trends.

Answer from: Quest

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