Question
Firm C is considering the acquisition of Firm T. Firm C has estimated the cash flows,...
Firm C is considering the acquisition of Firm T. Firm C has estimated the cash flows, cost of capital, and growth rate for firm T shown below.
Answer the following questions to estimate the current value of firm T using the terminal value (aka horizon value) technique.
Cash flows, cost of capital, and growth rate for firm T
|
Year 1 |
Year 2 |
Year 3 |
Year 4 |
|
|
CF |
$12,100 |
$13,500 |
$16,300 |
$18,400 |
WACC = 10%, g = 3% (assumed constant following year 4).
Q1. What is the terminal value of Firm T in Year 4?
Q2. What is the present value of the terminal value?
Q3. What is the present value of Year 1 - Year 4 cash flows?
Q4. Estimate the current value of firm T.
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Answer #1
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