Estimate the value of the stock implied by the fundamentals

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Question - Fundamental valuation - Financial analyst is evaluating XS Company by using the FCFF valuation approach. The analyst has collected the following information (currency in euro): XS has net income of €250 million, depreciation of € 90 million, capital expenditures of € 170 million, and an increase in working capital of € 40 million. The resulting FCFF is expected to increase by 12% for the first four years. After the four years of high growth, the company's NOPAT is expected to grow by 3% a year indefinitely and XS is going to reinvest (incl. gross investment into capital assets and net working capital) 25% of it's after-tax operating income (e.g. NOPAT).

The current market value of XS's outstanding debt is € 1,800 million. The company has also $200 million worth non-core liquid financial investments.

The corporate tax rate is 30 percent.

XS is financed with 40 percent debt and 60 percent equity. The before - tax cost of debt is 6% and the before - tax cost of equity is 13 percent. XS has 10 million outstanding shares.

Required - Estimate the value of the stock implied by the fundamentals?

Reference no: EM132789279

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