Estimate the free cashflows to the firm

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You are trying to value ListoFact, a data processing company. The company generated $ 1 billion in revenues in the most recent financial year and expects revenues to grow 3% a year in perpetuity. It generated $ 30 million in after-tax operating income in the most recent financial year and expects after-tax operating margin to double over the next 3 years (in equal annual increments ). After year 3, the margin will stabilize at year 3 levels forever. The firm is expected to have depreciation of $ 20 million and capital expenditures of $15 million each year for the next 3 years and to earn a 10% return on capital in perpetuity after that. There are no working capital requirements. The cost of capital will be 12% for the next 3 years and 10% thereafter.

a. Estimate the free cashflows to the firm each year for the next 3 years.

b. Estimate the value of the firm at the end of the third year (terminal value)

c. Estimate the value of equity per share today, if the firm has $ 150 million in debt outstanding, $ 25 million as a cash balance and 10 million shares

Reference no: EM132643817

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