Kendra Enterprises has never paid a dividend. Free cash flow is projected to be $80,000 and $100,000 for the next 2 years, respectively

Kendra Enterprises has never paid a dividend. Free cash flow is projected to be $80,000 and $100,000 for the next 2 years, respectively; after the second year, FCF is expected to grow at a constant rate of 5%. The company's weighted average cost of capital is 18%.

What is the terminal, or horizon, value of operations? (Hint: Find the value of all free cash flows beyond Year 2 discounted back to Year 2.) Round your answer to the nearest cent.
$
Calculate the value of Kendra's operations. Round your answer to the nearest cent. Round intermediate calculations to two decimal places.
$

Expert Solution

horizon value of operations=(Free cash flow for year 2*Growth rate)/(WACC-Growth rate)

=(100,000*1.05)/(0.18-0.05)

=$807692.31(Approx)

Value of operations=Future FCF and value*Present value of discounting factor(rate%,time period)

=80,000/1.18+100,000/1.18^2+807692.31/1.18^2

=$719687.09(Approx)

jeff jeffy answered 2 years ago

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