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Fair Value for Stock Assignment | Homework For You

If there are 500 million shares outstanding, use the following information to find a fair value for Galaxy Interiors stock using the Free Cash Flow (FCF) model.Homework For You

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GALAXY INTERIORS INCOME STATEMENT
($ in millions)
NET SALES $        35,000
COST OF GOODS SOLD $        17,500
DEPRECIATION $          2,500
EARNINGS BEFORE INTEREST AND TAXES (EBIT) $        15,000
INTEREST EXPENSE $          1,300
TAXABLE INCOME (EARNINGS BEFORE TAXES; EBT) $        13,700
TAXES (0.30) $          4,110
NET INCOME $          9,590

 

GALAXY INTERIORS BALANCE SHEET (PAST & CURRENT)
($ IN MILLIONS)
PAST YR CURRENT YR PAST YR CURRENT YR
CURRENT ASSETS 5500 6700 CURRENT LIABILITIES 2200 3000
(NET) FIXED ASSETS 25000 27000 LONG TERM DEBT 9300 9700
TOTAL ASSETS 30500 33700 TOTAL EQUITY 19000 21000
TOTAL LIAB & EQUITY 30500 33700

Also, assume the following:

  • Free cash flow (FCF) will grow at 2.5%
  • Galaxy’s equity beta is 1.50
  • Risk-free rate is 3% and market return is 13%
  • Currently, Galaxy is not paying any dividends
  • Book value of total debt is equal to the market value of debt
  • further note that, FCF (Free cash flow) = EBIT*(1-t) + depreciation – NCS – change in NWC
approx. $125
approx. $199
approx. $375
approx. $258

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