IDX Technologies is a privately held developer of advanced security systems base
ID: 2806221 • Letter: I
Question
IDX Technologies is a privately held developer of advanced security systems based in Chicago. As part of your business development strategy, in late 2013 you initiate discussions with IDX's founder about the possibility of acquiring the business at the end of 2013. Estimate the value of IDX per share using a discounted FCF approach and the following data: • Debt: $ 33 million • Excess cash: $ 111million • Shares outstanding: 50 million • Expected FCF in 2014: $ 47 million • Expected FCF in 2015: $ 58 million • Future FCF growth rate beyond 2015: 5 % • Weighted-average cost of capital: 9.4 %
Explanation / Answer
(Kindly note: all numbers in millions)
Discounted Cash Flow valuation of company's operating assets as of 2013 year end= PV of FCF in Yr 2014+Terminal FCF in Yr 2015*(1+Terminal growth rate)/(WACC-Terminal growth Rate)
=47/1.094+58*1.05/(0.094-0.05)
=1427.05
Firm equity value= Value of net operating assets+Cash-Debt=1427.05+111-33=1505.05
Value of IDX per share=Firm equity value/No of shares outstanding=1505.05/50=30.10