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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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