Question

Free Cash Flow 2013 = 40000

Free Cash Flow 2014 = 42000

FCF 2015= 44000

FCF 2016 = 46000

FCF2017=48000

WACC=12%

Growth Rate = 2.8%

Determine the Terminal Value of the company for 2013.

Answer #1

Statement showing terminal value at end of year 2013

Year | Cash flow | PVIF @ 12% | PV |

2014 | 42000 | 0.8929 | 37500.00 |

2015 | 44000 | 0.7972 | 35076.53 |

2016 | 46000 | 0.7118 | 32741.89 |

2017 | 48000 | 0.6355 | 30504.87 |

Termial value at end of year 2017 | 536347.83 | 0.6355 | 340858.74 |

Termial value at end of year 2013 | 476682.03 |

Thus Termial value at end of year 2013 = $476682.03

Termial value at end of year 2017 = Cash flow for year 2018/WACC-g

g = growth rate = 2.8%

Cash flow for year 2018 = Cash flow for year 2017(1+g)

=48000(1+2.8%)

=48000(1+0.028)

=48000(1.028)

=49344

Termial value at end of year 2017 = 49344/12%-2.8%

= 49344/9.2%

= 536347.83 $

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You Answered
Correct Answer
727.0 margin of error +/- 1
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