Question

	2018	2019	2020	2021	2022	2023
Operating Cash Flow		3,812	4,299	5,295	5,923	6,611
Capital Spending		1,272	1,247	1,197	1,844	1,423
Change in Net Working Capital		1,248	1,321	2,052	1,837	1,195
Free Cash Flow:	950	1,292	1,731	2,046	2,242	3,993
PV of FCF:		1,182	1,449	1,567	1,571	2,560
% Growth of Free Cash Flow:	33.26%	Geometric Average
Growing Annuity Growth (g)	0.09978	30% of Analysis period Growth
Horizon Period Growth (g)	0.03326	10% of Analysis period Growth
PV of Analysis Period:	8,329	A
Initial Growing Annuity FCF	4,391	at t=6
Value of Growing Annuity		at t=5
PV of Growing Annuity Period		B
Initial Horizon FCF:		at t=14
Value of Horizon:		at t=13
PV of Horizon Period:		C
Total Value of Firm:		A+B+C
Less Debt (@ t=0)	4,200
Total Value to Shareholders:

Answer 1

Value of growing annuity = { P/(r-g) } * [ 1- {(1+g) / (1+r)}^ⁿ ]

P = First payment = 4391

R = rate of discount = {(1292/1182) - 1} = 9.3% (rate at which 2019 cash flow is discounted)

g = growth rate = 0.09978 = 9.978% (given in question)

n = number of years = 14-6 = 8 years (time period after given in table and before horizon period starts)

= 4391/(.093-.09978) * (1- (((1.09978)/(1.093))^8) = 32845.56

PV of growing annuity at period 0 = 32845.56 / (1.093^⁵) = 21056___________________B

Initial Horizon FCF = last growing annuity * (1+Horizon Period Growth)

= (4391*(1.09978)^7) * (1.03326) = 8829.05

Value of horizon period = Initial Horizon FCF/(Discount rate - growth rate)

= 8829.05/(.093-.03326) = 147791.26

PV of horizon period = 147791.26 / (1.093^¹³) = 46514.31 ___________________________C

Total Value of Firm = A + B + C

= 8,329 + 21056 + 46514.31 = 75899.31

Total Value to Shareholders = Total Value of Firm - Debt

= 75899.31 - 4200 = 71699.31