Use the following summary financial statement information and forecasts provided

Question

Use the following summary financial statement information and forecasts provided by TTU Value-Metrics to answer the valuation questions in this section about Hi-Flyer Corp. which has a December 31 fiscal year end.

Using the above forecasts, determine the intrinsic value of High Flyer shares as at December 31, 2017. Use the discounted dividends model; assume the forecast dividend payment in 2021 is $0.35 and that it will growth by 8% per year in perpetuity. The appropriate intrinsic value (Model Price) at 12/31/2017 is

(in thousands except per share data) Actual Estimated Estimated Estimated 2017 2018 2019 2020 Net Income 225,000 200,000 215,000 230,000 Total Dividends Paid 48,000 20,000 25,000 30,000 Book Value of Equity 1,500,000 Total Liabilities 1,000,000 CFFO 400,000 150,000 200,000 250,000 CFFI -250,000 -100,000 -200,000 -200,000 Dividends Per Share 0.48 0.20 0.25 0.30 Shares Outstanding (12/31/17) 100,000 Cost of Equity 0.14 Cost of Debt 0.08 WACC(at) 0.11

Explanation / Answer

Using DIivdend Discount Model:

Intrinsic Value=Next Dividend/(cost of equity-growth rate)=0.35/(14%-8%)=5.833333333

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