Question

A corporation is a fast-growing supplier of office products. Analysts project the following free cash flows during the next 3 years, after which the free cash flows are expected to grow at a constant rate of 7%. The corp's WACC is 14%.

Year 1: -$17

Year 2: $25

Year 3: $35

What is the firm's market value today? Round to 2 decimal places at the end, do not round intermediate calculations. Include the dollar sign.

Answer 1

Year 1 = -17

Year 2 = 25

Year 3 = 35

Terminal Value for Year 3 = (Year 3 ) * (1 +g) /(wacc -g) = 35 * (1 + 0.07)/(0.14 - 0.07) = 535

Market value today = Present value of future cash flow and terminal value discounted at wacc

Market value today = -17/(1+0.14)^1 + 25/(1+0.14)^2 + 35/(1+0.14)^3 + 535/(1+0.14)^3

= 384.73 Answer