A company is projected to generate free cash flows of $164 million per year for the...

A company is projected to generate free cash flows of $164 million per year for the next 3 years (FCFF1, FCFF2 and FCFF3). Thereafter, the cash flows are expected to grow at a 2.0% rate in perpetuity. The company's cost of capital is 10.2%. What is your estimate for its enterprise value? Answer in millions, rounded to one decimal place (e.g., $213,456,789 = 213.5).

Expert Solution

FCFF4 = FCFF3 * (1 + Growth Rate)

FCFF4 = $164 million * 1.02

FCFF4 = $167.28 million

Horizon Value of Firm = FCFF4 / (Cost of Capital - Growth Rate)

Horizon Value of Firm = $167.28 million / (0.102 - 0.02)

Horizon Value of Firm = $2,040 million

Enterprise Value = $164 million/1.102 + $164 million/1.102^2 + $164 million/1.102^3 + $2,040 million/1.102^3

Enterprise Value = $1,930.8 million

jeff jeffy answered 2 years ago

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