In: Finance
If NOPLATt+1 = $1,200, g = 2%, RONIC = 15%, WACC = 13%, then continuing value in year t is closest to:
a.) $8,741
b.) $7,933
c.) $9,133
d.) $10,000
e.) $9,454
Continuing value of a firm can be calculated as follows:
Continuing valuet = [NOPLATt+1 * ( 1- g/RONIC) ] / (wacc - g)
where, NOPLAT is the after tax operating profit for year t + 1
RONIC is the return on new invested capital
g = expected long term growth of revenue and cash flows
wacc = cost of capital for the company
Continuing valuet = [ 1200 * ( 1 - 0.02/0.15) ] / (0.13 - 0.02)
= 1200 * (1 - 0.1333) / (0.11)
= 1200 * 7.8788
= 9454.54
Option e $9454