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Scripps Inc. is projected to generate free cash flow (FCF) of $1,000,000 in its terminal year,...

Scripps Inc. is projected to generate free cash flow (FCF) of $1,000,000 in its terminal year, at which point it is forecasted to have a 4% growth rate. The firm's cost of equity is estimated to be 12%. Calculate the terminal value of Scripps Inc.

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Answer #1

Terminal Value of Scripps Inc = $1,30,00,000

Terminal Value = [ FCFn × (1+g) ] / [ Ke – g ]

FCFn     =   Free Cash Flow    = $10,00,000

g            =   Growth rate = 4%

Ke         = Cost of Equity = 12%        

Terminal Value    = [ $10,00,000 × (1 + 0.04) ] / [ 0.12 – 0.04 ]

                             = $10,40,000 / 0.08

                             = $1,30,00,000

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