Present Value at 13.46%






FCFE = Net Income (1- Reinvestment Rate)

To estimate the terminal value of equity, we first estimate the free cashflow to equity in year 6:

FCFE in year 6 = Net Income in year 6 (1- Equity Reinvestment RateStable Growth)

= 155.03 (1.02) (1- .1894) = $128.18 million The terminal value is then computed using the stable period cost of equity of 10.56%: Terminal value of equity = 128.18/(.1056-.02) = $1497.98 million

The current value of equity is the sum of the present values of the expected cashflows in table 12.3, the present value of the terminal value of equity and the value of cash and non-operating assets today:

Present Value of FCFEs in high growth phase = $163.73

+ Present Value of Terminal Equity Value = 1497.98/1.13465 = $796.55 Value of equity in operating assets = $960.28

+ Value of Cash and Marketable Securities = $352.28

Value of equity in firm = $1,312.56

Dividing by the 859.59 million shares outstanding yields a value per share of $1.53. Converted into Brazilian Real at the exchange rate of 3.15 BR/$ prevailing at the time of this valuation, we get a value per share of 4.81 BR per share, well below the market price of 7.50 BR/share.

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