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Calculate company X shares using cash flow valuation method

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Question - On January 2016, shares of Company X trade at $6.50 per share, with 400 million shares outstanding. The company has net debt of $300 million. After building an earnings model for Company X, you have projected free cash flow for each year as follows:

Year

2016

2017

2018

2019

2020

2021

2022

FCF

110

120

150

170

200

250

280

Weighted average cost of capital - 10%

Long-term FCF growth rate - 3%

According to the discounted cash flow valuation method, Company X shares are (assume all cash flows are generated at the end of the year (i.e. no mid - year adjustment))

A. $0.83 per share undervalued

B. $0.23 per share overvalued

C. $0.13 per share undervalued

D. $0.83 per share overvalued

Reference no: EM132198002

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