Ankh-Sto Associates Co. is expected to generate a free cash flow (FCF) of $3,690

Question

Ankh-Sto Associates Co. is expected to generate a free cash flow (FCF) of $3,690.00 million this year (FCF1 $3,690.00 million), and the FCF is expected to grow at a rate of 26.20% over the following two years (FCF2 and FCF). After the third year, however, the FCF is expected to grow at a constant rate of 4.26% per year, which will last forever (FCF4). If Ankh-Sto Associates Co.'s weighted average cost of capital (WACC) is 12.78%, what is the current total firm value of Ankh-Sto Associates Co.? O $61,163.25 million $82,945.49 milon o $11,029.88 million $73,395.90 million Ankh-Sto Associates Co.'s debt has a market value of $45,872 million, and Ankh-Sto Associates Co. has no preferred stock. If Ankh-Sto Associates Co. has 750 million shares of common stock outstanding, what is Ankh-Sto Associates Co.'s estimated intrinsic value per share of common stock? O $19.39 $22.43 $61.16 O $20.39

Explanation / Answer

a.

FCF1=3690

FCF2=(3690*1.262)=$4656.78

FCF3=(3690*1.262)=$5876.85636

Value after year 3=(FCF3*Growth rate)/(WACC-Growth rate)

=(5876.85636*1.0426)/(0.1278-0.0426)=$71915.6155 million

Hence current value=Future FCF*Present value of discounting factor(12.78%,time period)

=3690/1.1278+$4656.78/1.1278^2+$5876.85636/1.1278^3+$71915.6155 million/1.1278^3

=$61163.25million

b.Intrinsic value per share=(Current value-Debt)/Common stock oustanding
=(61163.25-45872)/750

which is equal to

=20.39(Approx).

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