Heavy Metal Corporation is expected to generate the following free cash flows over the next five years:
Year 1 2 3 4 5
FCF($millions) 53 68 78 75 82
After then, the free cash flows are expected to grow at the industry average of 4% per year. Using the discounted free cash flow model and a weighted average cost of capital of 14%:
Estimate the enterprise value of Heavy Metal.
If Heavy Metal has no excess cash, debt of $300 million, and 40 million shares outstanding, estimate its share price
- Estimate the enterprise value of Heavy Metal.
Value to End of Year 4 = 82/(14%-4%) = $820
Value
= 53 / 1.14 + 68/(1.14^2) + 78 /(1.14^3) + (75 + 820) /(1.14^4)
= $681.37
- If Heavy Metal has no excess cash, debt of $300 million, and 40 million shares outstanding, estimate its share price.
Price = (681.37-300)/40 = $9.53
