You Name 1 Use the below date and the simple FCFF model to e

Name, 1) Use the below date and the simple FCFF model to estimate the volue per share of Exson Alobi ticker XOMV-Note: Not all iformotion may be needed for the solution. Show aa work ?stimated 2019 sales will be S302Baon and operating margin is expected to be 6% You expected FCFF togow at 4% into future. The tax rate for XOM is 35% You expected no change in net working capital, capital expenditures of $15 biltion, and depreciation expense of $19 billion in cash and total corporate debt of $40.1 billion. The company has 4.23 billion shares outstanding The yield on the 10 year Treasury bond is 2.85% and the expected return on the beta of .82. The WACCfor Exxon Mobil is 860% a6 points) for 2019. Exxon Mobil has $4 Billion market is 5%. Exxon has a

Solution

Objective

Value Per Share =Value of Equity / Number of Shares Outstanding

Value of Equity = Value of Firm - Value of Debt

Value of Firm = Free Cash Flows X ( 1+ Growth rate ) / ( Weighted Average Cost of Capital - Growth rate )

Free Cash Flows = Net Income + Non- Cash Charges + Int X ( 1- tax rate ) - Capital Expenditures - Working Capital Investment

Weighted Average Cost of Capital

= Cost of Equity X Weight of Equity + Cost of Debt ( 1- Tax Rate ) X Weight of Debt

Cost of Equity = Risk Free Interest Rate + Beta X (Market return- Risk Free Return )

= 2.85 % + 0.82 X ( 5% -2.82% )

= 4.613%

Cost of Debt is Not given Even to calculate from reverese calculation weight of Equity and Debt is required.

1. Net Income = Expected Sales X Operating Margin

= $ 302 B x 6 %

= $ 18.12 Billion

2. Non-Cash Charges = Depreciation Expense = $ 19 Billion

3. Interest ( 1- Tax Rate ) = Assumed to cover in Operating marging since no cost of debt is given, Even to calculate from WACC Value of Equity is not given

4. Capital Expenditure = $ 15 Billion

5. Thus ,

Free Cash Flows = Net Income + Non- Cash Charges + Int X ( 1- tax rate ) - Capital Expenditures - Working Capital Investment

= $ 18.12 + 19 + 0 -15-0

= $ 22.12 Billion

Value of Firm = Free Cash Flows X ( 1+ Growth rate ) / ( Weighted Average Cost of Capital - Growth rate )

= $ 22.12 X ( 1+0.04 ) / (0.086-0.04)

= $ 500.10 Billion

Value of Equity = Value of Firm - Value of Debt

= $ 500.10 - 40.1

= $ 460 Billion

Value Per Share =Value of Equity / Number of Shares Outstanding

= $ 460 Billion / 4.23 Billion

= $ 108.74