Scenario #3
Management wants to evaluate the projected share price for Snowbirds Resort, Inc. based on the projected future cash flows of the
company. These cash flows are outlined below. The company anticipates a 4% growth rate per year after the 5th year, and has a weighted
average cost of capital of 12%. The company has no excess cash, debt of $275 million, and 30 million shares outstanding. Use the
discounted free cash flow model to determine the share price for Snowbirds'. (Follows example 9.7 from text)
Year
1
2
3
4
5
Free Cash Flow
53
68
78
75
82
(Millions)
What is the Terminal Enterprise Value of Snowbirds Resort, Inc?
Terminal Value = 1,066
Value = [(1+growth) / (r of WACC - G of cash flows)]xFCF year 5
Using the Terminal Enterprise Value, what is the current, present value of the enterprise?
Present Value =
Present Value = (53000000/1.12)+(68000000/1.12^2)+(78000000/1.12^3)+(75000000/1.12^4)+((82000000+1066000000)/1.12^5)
856119357.8
What is the estimated value of one share of Snowbirds Resort, Inc.'s stock?
Price =
Share Price = (PV+Cash-Debt)/Shares Outstanding