The company has the following free cash flows for the next 4 years FCF1=-100, FCF2=-55, FCF3=-40,...

The company has the following free cash flows for the next 4 years FCF1=-100, FCF2=-55, FCF3=-40, FCF4=150, after year 4, the growth rate of the FCF will be 10%, and the WACC=15%, then what the firm value should be?

Expert Solution

1817.70

Working:

a.	Present value of 4 years cash flow

	Year	Cash flow	Discount factor	Present Value
	1	-100	0.870	-86.96
	2	-55	0.756	-41.59
	3	-40	0.658	-26.30
	4	150	0.572	85.76

		Total		-69.08

b.	Terminal Value of cash flow

	Terminal Value		=	FCF4*(1+g)/(Ke-g)		Where,
			=	150*(1+0.10)/(0.15-0.10)		FCF4	150
			=	3,300.00		g	10%
						Ke	15%

c.	Present Value of terminal value			=	3,300	x	0.572
				=	1,886.79

d.	Present value of all cash flows			=	-69.08	+	1,886.79
				=	1,817.70

jeff jeffy answered 2 years ago

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