Free Cash Flow to Equity Valuation

In the context of equity investments, Free Cash Flow to Equity (FCFE) is a method used to assess a company's financial health by determining the amount of cash available to shareholders after all expenses, debts, and reinvestments have been accounted for. Considering a company with an expected FCFE of $1 million for the upcoming year, a discount rate of 10%, and projected growth in FCFE of 5% for the next five years, what would be the intrinsic value per share if the company has 100,000 shares outstanding?

To calculate the intrinsic value per share using the FCFE model, you'll need to determine the present value of future cash flows. This involves utilizing the formula for the present value of growing cash flows, which is:

PV = FCFE / (r - g)

where PV is the present value, FCFE is the forecasted Free Cash Flow to Equity, r is the discount rate, and g is the growth rate. Keep in mind that the first step is to determine the present value of the cash flows for the first five years and then the terminal value beyond that period.