hard · Investment Banking implied-share-price
A DCF produces an enterprise value of $5,000mm. The company has $400mm gross debt, $150mm cash, a $200mm underfunded pension, $300mm of in-the-money convertible notes (already counted in gross debt at face), and $120mm of NCI (minority interest) reflecting a 40%-owned consolidated subsidiary whose full EBITDA is in the projections. There are 100mm basic shares plus 5mm options struck at $20 (treasury method).
Which adjustment, if mishandled, most distorts the implied per-share equity value, and what is the correct treatment?
- Deduct NCI of $120mm from enterprise value before reaching equity value, because the consolidated DCF captures 100% of the subsidiary's cash flows but minority holders own 40% of that value.
- Add the $300mm convertibles a second time as a fully diluted share-count adjustment, because in-the-money converts always increase shares outstanding under the treasury stock method.
- Treat the $200mm pension underfunding as a cash-like asset that increases equity value, since an underfunded pension represents future contributions the firm has not yet actually made.
- Ignore NCI entirely from the equity bridge because minority interest is purely an equity-side accounting item that nets out automatically once basic shares convert to a fully diluted share count.
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