Equity Q-3

Metiu Metev, an analyst with Sofia Equity Researchers, has gathered the following information about Balkan Steel Mills (BSM): Current year’s operating free cash flow BGN 5 million Cost of equity capital 15% Weighted average cost of capital 12.40% Estimated long-term growth rate 6% Given this information, Metev’s best estimate of BSM’s intrinsic value (in BGN millions) would be closest to: A. 55.56 million. B. 58.89 million. C. 78.13 million. D. 82.81 million.

A. 5/(.15-0.6) = 55.56

D 5*(1.06)/(.1240-.06)

I remember seeing this question on the CFA Mock: For some reason they use the WACC instead of the cost to equity. Answer is D. 5(1.06)/(.124-.06) = 82.21 Can someone please explain why they use WACC instead of the cost to equity?

my bad, it is D, and WACC is used since Operating FCF belongs to both creditors and shareholders.