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Our company projects the following FCFs for the next 3 years: $5,000,000; $5,500,000; $6,000,000. Future growth...

Our company projects the following FCFs for the next 3 years: $5,000,000; $5,500,000; $6,000,000. Future growth is expected to slow to 5% beyond year 3. If the WACC is 8%, what is the value of the company today?

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Answer #1

Draw a time line and mention the cash flows

to find the terminal value of the company project at time period 3rd we have to use gordon growth formula

PV3=[ 6000000(1+5%)]/(8%-5%)= 210000000

add the cash flows of third year ie 210000000 + 6000000= 216000000

PV of this cashlow at time period 0 = 216000000/(1.08)^3= 171467764.1

PV of cshflow in 2nd year at time 0 = 5500000/(1.08)^2 = 4715363.512

PV of cshflow in 1st year at time 0 = 5000000/1.08 = 4629629.630

add all the above PVs 180812757.2 is the Present value of the company project

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