Step 1: Calculate each year’s FCFE and discount at the required return.

• FCFE = net income + depreciation − capital expenditures − increase in working capital − principal repayments + new debt issues

• Year 1: 10.0 + 3.0 − 2.5 − 1.0 − 1.5 = 8.0,

• PV = 7.08 = 8.0 / (1.13)¹, or FV = −8.0, I = 13, PMT = 0, N = 1, Compute PV

• Year 2: 10.0 × 1.10 + 3.0 − 2.5 − 1.0 − 1.5 = 9.0,

• PV = 7.05 = 9.0 / (1.13)², or FV = −9.0, I = 13, PMT = 0, N = 2, Compute PV

• Year 3: 10.0 × (1.10)² + 3.0 − 2.5 − 1.0 − 1.5 = 10.10

• PV = 7.00 = 10.10 / (1.13)³, or FV = −10.10, I = 13, PMT = 0, N = 3, Compute PV

Step 2: Calculate Present Value of final cash flow times FCFE multiple.

• Value at end of year 3 = FCFE3 × multiple = 10.10 × 13 = 131.30

• PV = 91.00 = 131.30 / (1.13)³ , or using calculator, N = 3, FV = −131.30, I = 13, PMT = 0, Compute PV

Step 3: Calculate per share value.

• Add up PV of FCFE and end value and divide by number of shares outstanding

• = (7.08 + 7.05 + 7.00 + 91.0) / 10.0 = 11.21