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Fundamentals of Financial Manageme...

9th Edition
Eugene F. Brigham + 1 other
ISBN: 9781305635937

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BuyFindarrow_forward

Fundamentals of Financial Manageme...

9th Edition
Eugene F. Brigham + 1 other
ISBN: 9781305635937
Textbook Problem
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Finally, you can also use the information on the Internet to value the entire corporation. This approach requires that you estimate XOM’s annual free cash flows. Once you estimate the value of the entire corporation, you subtract the value of debt and preferred stock to arrive at an estimate of the company’s equity value. By dividing this value by the number of shares of common stock outstanding, you calculate an alternative estimate of the stock’s intrinsic value. Although this approach may take additional time and involves more judgment concerning forecasts of future free cash flows, you can use the financial statements and growth forecasts on the Internet as useful starting points.

If you go to the detailed annual cash flow statement financials screen, you will find historical annual free cash flow values. Although these numbers are useful as a starting point to arrive at an estimate for the next year, MSN’s definition of free cash flow subtracts out dividends. Therefore, to make it comparable to the measure in this text, you must add back dividends. To see MSN’s definition of free cash flow (or any term), enter onlinehelp. microsoft.com/en-us/msn/azinvestglossary.aspx. On the next screen you will see an alphabetic index; just click the first letter of the term for the definition you’re interested in.

Summary Introduction

To calculate: The intrinsic value of the given company.

Introduction:

Intrinsic Value of Stock:

It can be defined as the actual value of the stock of a company after considering all assets whether tangible or intangible which may or may not be as same as the market value of a stock.

Explanation

Given information:

The net worth of the company is $392 billion.

A number of shares outstanding of the company is 4.237 billion.

The formula to calculate the intrinsic value is,

Intrinsic value=Net worth of companyNumber of shares outstanding

Substitute $392 for a net worth of the company and $4

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