Quinton Johnston is evaluating Taiwan Semiconductor Manufacturing Co., Ltd., (NYSE: TSM) headquartered in Hsinchu, Taiwan. In 2001, when Johnston is performing his analysis, the company-and indeed, the whole industry-is unprofitable. Furthermore, TSM pays no dividends on its common shares. Johnston decides to value TSM using his forecasts of FCFE and makes the following assumptions:
- The company has 17.0 billion outstanding shares.
- Sales will be $5.5 billion in 2002, increasing at 28 percent annually for the next four years (through 2006).
- Net income will be 32 percent of sales.
- Investment in fixed assets will be 35 percent of sales, investment in working capital will be 6 percent of sales, and depreciation will be 9 percent of sales.
- 20 percent of the investment in assets will be financed with debt.
- Interest expenses will be only 2 percent of sales.
- The tax rate will be 10 percent.
- TSM”s beta is 2.1, the risk-free government bond rate is 6.4 percent, and the equity risk premium is 5.0 percent.
- At the end of 2006, Johnston projects TSM will sell for 18 times earnings.
What is the value of one ordinary share of Taiwan Semiconductor Manufacturing Co., Ltd.?