Question

Scampini Technologies is expected to generate $25 million in free cash flow next year, and FCF is expected to grow at a constant rate of 4% per year indefinitely. Scampini has no debt or preferred stock, its WACC is 10%, and it has zero non-operating assets. If Scampini has 40 million shares of stock outstanding, what is the stock’s value per share?

Answer 1

The stock’s value per share is $10.42

Step-by-step explanation:

For:

FCF1 = Expected cash flow of the firm

= $25 million

WACC = 10%

g = 4%

Firm value = FCF1/(WACC - g)

= 25,000,000/(0.10 - 0.04)

= $416,666,666.67

We know that there is no debt & preferred stock, so the firm value will be equal to Equity value :

Firm value = Equity value

= $416,666,666.67

stock value per share = Equity Value/No. of share outstanding

= $416,666,666.67/40,000,000

= $10.42 per share

Therefore, The stock’s value per share is $10.42