The financial statements of Lioi Steel
Fabricators are shown below, with the actual results for 2004 and the
projections for 2005. Free cash flow is expected to grow at a 6 percent rate after
2005. The weighted average cost of capital is 11 percent.
a. If operating capital as of 12/31/2004 is
$502.2 million, what is the free cash flow for 12/31/2005?
b. What is the horizon value as of
12/31/2005?
c. What is the value of operations as of 12/31/2004?
d. What is the total value of the company
as of 12/31/2004?
e. What is the price per share for
12/31/2004?
Income Statement for the Year Ending
December 31
(Millions of Dollars Except for Per Share
Data)
a. NOPAT2005
= $108.6(1-0.4) = $65.16
NOWC2005 = ($5.6 + $56.2 + $112.4) –
($11.2 + $28.1) = $134.9 million.
Capital2005 = $134.9 + $397.5 = $532.4
million.
FCF2005 = NOPAT – Investment in Capital
= $65.16 – ($532.4 - $502.2)
=
$65.16 - $30.2 = $34.96 million.
b. HV2005
= [$34.96(1.06)]/(0.11-0.06) = $741.152 million.
c. VOp
at 12/31/2004
= [$34.96 + $741.152]/(1+0.11) = $699.20 million.
d. Total
corporate value = $699.20 + $49.9 = $749.10 million.
e. Value
of equity = $749.10 – ($69.9 + $140.8) - $35.0 = $503.4 million.
Price
per share = $503.4 / 10 = $50.34.