The following table lists the Income statement and Balance sheet for First American Furniture Company
|
Income Statement |
2017 |
2018 |
|
Balance Sheet |
2017 |
2018 |
||
|
Revenue |
$516 |
$630 |
Current assets |
$350 |
$420 |
|||
|
Depreciation |
30 |
35 |
Prop, plant, & Equip. |
500 |
520 |
|||
|
Other operating costs |
400 |
480 |
Total assets |
$850 |
$940 |
|||
|
Income before taxes |
86 |
115 |
Current liabilities |
130 |
150 |
|||
|
Taxes |
30 |
40 |
Long-term debt |
50 |
80 |
|||
|
Net income |
56 |
75 |
Total liabilities |
$180 |
$230 |
|||
|
Dividends |
20 |
26 |
Shareholders’ equity |
$490 |
$480 |
|||
|
Earnings per share |
$0.56 |
$0.95 |
Total L and equity |
$850 |
$940 |
|||
|
Dividend per share |
$0.20 |
$0.26 |
Capital expenditures |
45 |
50 |
|||
|
# of Common shares |
100 |
100 |
||||||
You are a financial analyst at RBC. Using the data above, you want to determine the value of First American Bank’s stock using the Free Cash Flow to Equity (FCFE) model. You believe that the company’s FCFE will grow at 30% for three years and 10% thereafter. Capital expenditures, depreciation, working capital, and net debt are all expected to increase proportionately with FCFE. The required rate of return on equity is 15%.
Calculate the amount of FCFE per share for the year 2018.
Calculate Projected 2021 terminal value based on constant growth of 10%
Calculate the current value of a share of the stock based on the two-stage FCFE model.
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