Question
In: Finance
Today is January 31, 2018. You forecasted the following cash flows (in millions) for a firm:...
Today is January 31, 2018. You forecasted the following cash flows (in millions) for a firm:
|
Cash flow from operations |
|
|
January 31, 2019 |
$4,822.32 |
|
January 31, 2020 |
$5,342.00 |
|
January 31, 2021 |
$4,525.11 |
|
Cash investment in operations |
|
|
January 31, 2019 |
$800.44 |
|
January 31, 2020 |
$913.21 |
|
January 31, 2021 |
$874.14 |
In addition, you are given the following data:
|
Net debt |
|
|
January 31, 2018 |
$342.11 |
and
|
Free cash flow growth after 2021 |
3.00% |
|
Required return |
10.00% |
What is the equity value of the firm (in millions) using Discounted Cash Flow model? Hint: First, calculate the free cash flows and discount the free cash flows. Finally, subtract the net debt to obtain equity value.
|
$46,434.11 |
||
|
$48,111.02 |
||
|
$50,079.02 |
||
|
$52,515.77 |
Solutions
Expert Solution
| Years Ending | ||||||||
| Jan31,2019 | Jan31,2020 | Jan31,2021 | Jan31,2022 | |||||
| N | Years from today(Jan,312018) | 1 | 2 | 3 | 4 | |||
| A | Cash Flow from Operations ($ million) | $4,822.32 | $5,342.00 | $4,525.11 | ||||
| B | Cash Flow for investment ($ million) | ($800.44) | ($913.21) | ($874.14) | ||||
| C=A+B | Free Cash Flow ($ million) | $4,021.88 | $4,428.79 | $3,650.97 | ||||
| D | Expected Free Cah flow in year 4=3650.97*1.03 | $3,760.50 | ||||||
| E=D/(0.1-0.03) | Horizontal Value of the firm in year3 | $53,721.42 | SUM | |||||
| F=C/((1+0.1)^N) | Present Value of Expected Free Cash Flow | 3656.2545 | 3660.15702 | 2743.0278 | 10059.4394 | |||
| G | Net Present Value of Free Cash flows of Year1-3 | 10059.439 | ||||||
| H=E/(1.1^3) | Present Value of Horizontal Value | 40361.695 | ||||||
| I=G+H | Present Value of the firm($ million) | $50,421.13 | ||||||
| J | Present Value of Debt in Jan31.2018 | $342.11 | ||||||
| K=I-J | Equity Value of the firm ($ million) | $50,079.02 | ||||||
| ANSWER: $50,079.02(million) | ||||||||
jeff jeffy answered 2 years agoRelated Solutions
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