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The following table lists the Income statement and Balance sheet for First American Furniture Company
Income Statement
2017
2018
Balance Sheet
Revenue
$516
$630
Current assets
$350
$420
Depreciation
30
35
Prop, plant, & Equip.
500
520
Other operating costs
400
480
Total assets
$850
$940
Income before taxes
86
115
Current liabilities
130
150
Taxes
40
Long-term debt
50
80
Net income
56
75
Total liabilities
$180
$230
Dividends
20
26
Shareholders' equity
$490
$480
Earnings per share
$0.56
$0.95
Total L and equity
Dividend per share
$0.20
$0.26
Capital expenditures
45
# of Common shares
100
You are a financial analyst at RBC. Using the data above, you want to determine the value of First American Bank's stock using the Free Cash Flow to Equity (FCFE) model. You believe that the company's FCFE will grow at 40% for three years and 12% thereafter. Capital expenditures, depreciation, working capital, and net debt are all expected to increase proportionately with FCFE. The required rate of return on equity is 15%.
Calculate the amount of FCFE per share for the year 2018. (sample answer: $5.15)
Calculate Projected 2021 terminal value based on constant growth of 12% (sample answer: $25.15)
Calculate the current value of a share of the stock based on the two-stage FCFE model. (sample answer: $25.15)
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