Present value of FCFE during high-growth phase
To estimate theterminal value ofequity, we usedthe net
incomeintheyear11,reduceitbytheequityreinvestment
needsinthatyear,andthenassumeaperpetualgrowthrateto
get to a value.
Toestimatethevalueofequitytoday,wesumupthepresent
values of the FCFE over the high-growth period and
transition period and add to it the present value of the
terminal value of equity.
Addingthecurrentcashbalanceanddividingbythenumber
of shares yields the value of equity per share:
Thestockwastradingat7.78yuanpershare inNovember
2005, which would make it overvalued based on this
valuation.