SolarCity retained investment bank Lazard Frees & Co. LLC to help with its valuation and help it evaluate Tesla's original offer. SolarCity management projections of net cash flow (Smillions): I FY 2016 $161 FY 2017 $290 FY 2018 $454 FY 2019 $499 FY 2020 $635
Lazard estimated SolarCity's enterprise value as the present value of net cash flow for 2016 - 2020 plus a terminal value, assuming discount rate WACC of 10.5% and a perpetuity growth rate of 1.5%. SolarCity's equity value was then estimated by subtracting from enterprise value the face value of net debt (debt minus cash), $3.4 billion. SolarCity had 98.3 million shares outstanding. What is SolarCity's stock price implied by these projections? What is SolarCity's stock price before the merger announcement? Do you believe that SolarCity is undervalued? How does your calculation compare with Tesla's original offer value per share? For simplicity, assume the valuation date is the beginning of fiscal year 2016 and all cash flows will be realized at the end of the corresponding fiscal year.