Question

Free Cash Flow 2013 = 40000 Free Cash Flow 2014 = 42000 FCF 2015= 44000 FCF...

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.
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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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