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sir when a company is about to be listed, and is trying to fix the price band on what basis is per share value calculated? is it calculated using FCF to firm/no.of shares to be issued? or is it FCF to equity/no.of shares to be issued?
There is no rule either in exams or in real life because there are too many factors involved e.g. the forecast future earnings, the intended dividend policy, the liquidity of the market at the time etc..
In the exam, unless the question tells you how they intend to determine the issue price, you would do as would happen in real life and suggest and discuss possible issue prices depending on the information given.
sir in Mlima co. (june 2013) we have calculated FCF to firm and can find and deduct the MV of 2 issued debts too, to arrive at FCF to equity. So, I got a little flustered when asked to calculate the issue price; whether to deduct the MV of debts to arrive at FCF to equity and then find per share value or directly use FCF to firm. And in the answer they used the latter. hence, i thought may be there was a knowledge dearth on my part, and we are always supposed you to one of them?
so based on this example should we deduce that shares will always be issued at FCF to firm basis?
There will be no gearing in future because they intend to redeem both bonds and have no plans to raise any new debt.
Therefore using the information given, the value of the firm is the value of the equity and is the PV of the future free cash flows to equity discounted at the ungeared cost of equity.
You cannot deduce any rule – again it depends on the circumstances and on the information given in the question.
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