estimate this​ firm's stock price using the discounted free cash flow model

Question

Consider a firm that carries ​$125 million in​ debt, ​$52 million in​ cash, and has 50 million shares outstanding. The pro forma statement below summarizes the​ firm's projected free cash flows for the next four​ years: FCF Forecast​ ($ million)

EBIT- year 1:83.02 year 2:84.85 year 3:87.61 year 4:91.21.

​Less: Income tax at​ 21%- year 1:17.43 year 2:17.82 year 3:18.4 year 4:19.15. ​

Plus: Depreciation and Amortization- year 1:6.98 year 2:7.48 year 3:7.76 year 4:7.39

​Less: Capital Expenditures- year 1:4.68 year 2:4.55 year 3:4.68 year 4:4.72 ​

Less: Increase in Net Working Capital- year 1:2.39 year 2:2.83 year 3:2.55 year 4:2.64.

Free Cash Flow- year 1:65.5 year 2:67.13 year 3:69.74 year 4:72.09

The firm projects its free cash flow to grow at a rate of ​3% per year beyond year four. Assuming a weighted average cost of capital of ​12%, estimate this​ firm's stock price using the discounted free cash flow model. The​ firm's stock price is ​$13.8

how do I get to this answer?

Answer 1

So the answer I keep getting is 13.18, so I do not know if this was a typo or there is something wrong with information given. It also could just be an issue of intermediate rounding but that is unlikely.

The good news is that you have already done most of the work. The next thing you need to do is calculate terminal value. You need to take the cashflow in year 4 (72.09) and grow it by 3%. You will get 74.2527.

Then you need to divide this by the WACC-growth rate or 12%-3%=9%. So 74.2527/9% and you will get 825.03 for your terminal value.

Now this is the terminal value in year 4, so you have to discount it back to the present at 9% which gives you 524.3215. Then you take the NPV of the free cashflows (either by discounting them individually or using the NPV formula) and you get 207.4518. So your total enterprise value will be 731.7733.

You then subtract net debt of $73 million (Total debt-cash) and you get 658.7733

Lastly, you divide it by the 50 million shares and you get $13.18 per share.