1: Estimate the value of AEM and its equity from operations using the DCF method. In early 2002, Agnico-Eagle Mines' stock price dropped sharply by $1, eventually closing at $13.89. This price has reached one of the lowest levels, from the company's historical point of view. As a professional equity portfolio manager, you have a large number of AEM stocks at your fingertips. Acker and his team need to find a proper way to estimate AEM's fair value and its net worth. Discounted Cash Flow (DCF) was chosen to carry out this work. The theory behind the DCF valuation approach is that the value of the firm can be estimated using the expected future free cash flow discounted by an appropriate discount rate (Koller etc. 2005). However, within this approach, several assumptions need to be clearly examined. The following sections show the DCF process step by step. 1.1 cash flow value AEMFreeUS $ 2001 2002 2003 2004 2005 2006 2007 2008FCF -779000 4281000 6832000 11097000 12625000 13131000 1365 8000 142060 00The first important component of the DCF to estimate is the company's expected future free cash flow. However the FCF prediction has already been made by Acker. The relevant data is the estimated cash flow from 2002 to 2008, as well as the actual FCF at the end of 2001. All figures in this report are in $ value: Weighted Average Cost of Capital. The appropriate discounted rate should be used in the DCF approach. is the weighted average cost of capital. However, the WACC forecast has already been made by Acker by applying the following equation: WACC= E/V Re + D/V Rd (1-Tc)E: value of equity Re= cost of equity D: value of debt Rd = cost of debtV=E+DHowever the...... half of the document......f) 5.79% time remaining to maturity (t) assume equal to T 16In(S/X) 0.771049125 d1 2.521811406 d2 1.721811406N(d1 ) 0.994162386N(d2) 0.957448156Call Price 1929590819The above result shows that including the real option of unmined gold will provide an extra $1929590819 to the value of the company. This value will be treated as excess assets, meaning it could have a significant effect on your equity value. Put it all together Fair value of equity -105435887.7+option value of unmined gold 1929590819 Fair value of equity 1824154932÷Total number of shares 67722853 fair price of shares 26.93558896 Clearly, the current share price of $13.89 is deeply undervalued. The share's fair value of $26.94 was calculated including tax shield, on- and off-balance sheet value and the value of unmined gold, however this result is based on a number of assumptions.