Question

Computing Present Value of Terminal Period FCFF

Use the following data to compute the present value of the terminal period free cash flows to the firm for each of the four firms A, B, C, and D. The forecast horizon included four years.

					A	B	C	D
Terminal period free cash flow to the firm (FCFF)					$62,670	$6,813	$91,517	$34,672
WACC					5.0%	6.2%	4.3%	11.0%
Terminal period growth rate					1.0%	1.0%	2.0%	1.5%

Round answers to the nearest whole number.

					A	B	C	D
Present value of terminal cash flows					$Answer	$Answer	$Answer	$Answer

Answer 1

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			A	B	C	D
Present value of terminal cash Flow			$ 12,88,969	$                   1,03,000	$                    33,62,302	$          2,40,416
Workings:
Particulars	FCFF	Growth rate	WACC	Value at the beginning of the year	Present Value Factor	Present Value
	(i)	(ii)	(iii)	(iv) = [(i)/(iii - ii)]	(v) = [1/(1 + iii)^4]	(iv) X (v)
A	$ 62,670	1.0%	5.0%	$                 15,66,750	0.822702475	$       12,88,969
B	$    6,813	1.0%	6.2%	$                   1,31,019	0.78614369	$          1,03,000
C	$ 91,517	2.0%	4.3%	$                 39,79,000	0.845011786	$       33,62,302
D	$ 34,672	1.5%	11.0%	$                   3,64,968	0.658730974	$          2,40,416