ACCA Strategic Professional · Advanced Financial Management · Valuation and the use of free cash flows
Dunmore Ltd has enterprise value of $200 million derived from discounting FCFF at WACC. It has $60 million of debt, $15 million of cash surplus to operating needs (not included in FCFF) and 10 million shares. What is the value per share to equity holders?
The value per share is $15.50. Equity value equals enterprise value of $200 million less $60 million debt plus $15 million surplus cash, giving $155 million, which is divided by 10 million shares.
- A$14.00
- B$12.50
- C$15.50Correct
- D$20.00
Explanation
Equity value = EV - debt + surplus cash = 200 - 60 + 15 = $155 million. Dividing by 10 million shares gives $15.50. Omitting the cash gives $14.00; ignoring debt gives $20.00 less cash adjustment errors.
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