Trux Ltd is a listed company in the heavy vehicle industry. The market value of Trux Ltd's net debt is $800 million and the company has 250 million shares outstanding. Use this information to help answer the questions below. An analyst has collected the following information and wants to estimate the value of Trux's shares using the discounted free cash flow (FCF) model: Trux's FCF was $120 million in year 0 (historical FCF in the year just passed). Trux expects its FCF to grow by 10% per year for the next three years (in year 1, year 2 and year 3). Trux expects its FCF to grow by 4% per year indefinitely thereafter. The cost of equity is 15%. The cost of debt is 5%. The weighted average cost of capital is 12%. Using the discounted free cash flow model and the information above, what is the enterprise value of Trux? If a different analyst believes that the enterprise value of Trux Ltd is $2,500 million. According to this analy
Trux Ltd is a listed company in the heavy vehicle industry. The market value of Trux Ltd's net debt is $800 million and the company has 250 million shares outstanding. Use this information to help answer the questions below.
An analyst has collected the following information and wants to estimate the value of Trux's shares using the discounted
- Trux's FCF was $120 million in year 0 (historical FCF in the year just passed).
- Trux expects its FCF to grow by 10% per year for the next three years (in year 1, year 2 and year 3).
- Trux expects its FCF to grow by 4% per year indefinitely thereafter.
- The
cost of equity is 15%. - The cost of debt is 5%.
- The weighted average cost of capital is 12%.
Using the discounted free cash flow model and the information above, what is the enterprise value of Trux?
If a different analyst believes that the enterprise value of Trux Ltd is $2,500 million. According to this analyst, what will be the equity value per share of Trux Ltd?
The discounted free cash flow (DCF) model is a method of valuing a company by estimating its future cash flows and discounting them back to their present value using a discount rate. The purpose of using a DCF model is to estimate the intrinsic value of a company, which is the value that is not reflected in its current market price.
The enterprise value is considered a better indicator of a company's true value because it takes into account the company's debt and cash on hand, in addition to its market capitalization.
By using the DCF model, a company's future cash flows are projected and discounted to present value, and the present value is added to the company's debt, thus giving the enterprise value, this way the investor can use this value to determine whether the company is overvalued or undervalued.
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