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Section B - Case 2: Solaris Grid
Scenario: Solaris Grid is a private solar panel installation company looking to be acquired. The acquirer is valuing Solaris Grid using the Free Cash Flow to Firm (FCFF) method.
Solaris Grid's FCFF for the coming year (Year 1) is projected to be $4 million. These cash flows are expected to grow at a constant rate of 3% per annum in perpetuity.
The company's Weighted Average Cost of Capital (WACC) is 11%, and its Cost of Equity is 15%.
The market value of Solaris Grid's debt is $12 million.
Question:
What is the estimated Enterprise Value (total firm value) of Solaris Grid?
ACCA · Question 22 · Business Valuations
Section B - Case 2: Solaris Grid
Scenario: Solaris Grid is a private solar panel installation company looking to be acquired. The acquirer is valuing Solaris Grid using the Free Cash Flow to Firm (FCFF) method.
Solaris Grid's FCFF for the coming year (Year 1) is projected to be $4 million. These cash flows are expected to grow at a constant rate of 3% per annum in perpetuity.
The company's Weighted Average Cost of Capital (WACC) is 11%, and its Cost of Equity is 15%.
The market value of Solaris Grid's debt is $12 million.
Question:
If the acquirer wanted to calculate the Equity Value of Solaris Grid based on the DCF valuation above, what would it be?
Section B - Case 2: Solaris Grid
Scenario: Solaris Grid is a private solar panel installation company looking to be acquired. The acquirer is valuing Solaris Grid using the Free Cash Flow to Firm (FCFF) method.
Solaris Grid's FCFF for the coming year (Year 1) is projected to be $4 million. These cash flows are expected to grow at a constant rate of 3% per annum in perpetuity.
The company's Weighted Average Cost of Capital (WACC) is 11%, and its Cost of Equity is 15%.
The market value of Solaris Grid's debt is $12 million.
Question:
If the acquirer wanted to calculate the Equity Value of Solaris Grid based on the DCF valuation above, what would it be?
Answer options:
$38.0 million
$50.0 million
$62.0 million
$21.3 million
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