Finance for fun corporation ffffff is expected to generate...

Finance-For-Fun Corporation (FFFFFF) is expected to generate the following free cash flows over the next three years: . Years 1 2 3 FCF 54.554.5 68.868.8 79.479.4 Thereafter, the free cash flows are expected to grow at the industry average of 3.4 %3.4% per year. Using the discounted free cash flow model and a weighted average cost of capital of 13.6 %13.6%: a. Estimate the enterprise value of FFFFFF. b. If FFFFFF has no excess cash, debt of $ 308$308 million, and 3838 million shares outstanding, estimate its share price.

Transcript

00:01 Hello students, we are given a question here that heavy metal corporation is expected in order to generate the following free cash flows over the next five years.

00:10 So we are given here table of year and with respect to and it's a respect to fcf free cash flow in a million dollars.

00:19 So now further we are stated that after five years, the free cash flows are expected in order to grow at an industry average of 4 percentage per cent.

00:30 Year okay using a discounted free cash flow and a weighted average cost of capital of 14 percentage we need to find we need to solve these questions like first is estimate the enterprise value of heavy metal okay students so we can just say that here enterprise value can be written as enterprise value okay students it can be written as how we will solve it see we can just say that for one first year fcf is nothing but equal to 53.

01:02 So basically fc, a 53 divided by, here we can just say that it should be like a one plus students, one plus here.

01:13 We are given that weighted average cost is nothing but equal to 14 percentage.

01:18 So basically it should be added.

01:20 So 0 .14 students and it's a whole power will be 1.

01:27 Plus second term is for second year, the cash flow.

01:31 Is a free cash flow is 68 so 68 divided by here it should be obviously we can directly say that 1 plus 0 .14 okay so we can say that it should be 1 point of 14 and whole power is 1 students it should be 1 .14 and whole power is 2 now third will be equal to here we can say that third fcf is third year fcf is 78 so 78 then divided by 1 point of 14 and whole cube plus fourth year fcf is nothing but equal to 75 so 75a divided by 1 .14 and whole power is 4 plus at the end 50 year fcf is 82 so basically 82 divided by 1 .14 and whole power is 5 okay students now how we will solve it see we can just say that here 53 divided by 1 .14 so so basically it should be like a 46 .49, okay students, plus here we can say that 68 divided by 1 .14.

02:44 Okay, students, 68 divided by 1 .14 and it's a whole square.

02:51 So basically what we will get here, it should be equal to 52 .3 plus 78 divided by 1 .14 and whole power.

03:01 Is 3 so what we will get it will be equal to 52 .65 plus 75 divided by 1 .14 and whole power is 4 so we can just say that it will be equal to here 44 .41 plus 82 divided by 1 .14 and whole power is 5 so it should be equal to 42 .58.

03:28 Okay so now at the end we can say that 46 point of 49 plus 52 point of 3 2 plus 52 point of 65 plus 44 point of 4 1 and at the end 42 .58 so it should be equal to 238 .45 okay so it is nothing but the enterprise value now as we are supposed to know that we will go for the second part.

04:02 So since if a heavy metal has no access cash, it means access cash value will be zero, depth of $300 million and 40 million shares outstanding.

04:11 Estimates it's a share price.

04:14 So we are supposed to know that here.

04:16 Enterprise value can be written as enterprise value is equal to market capitalization, market capitalization okay, students, plus depth...

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