Consider an investment that pays $12.76 in year 1, $5.35 in year 2, and then stabilizes at a stable growth of 2% every year forever after that This firm has an interest rate (required rate of return) of 10%. What is the present value of this investment opportunity? Give your answer to two decimals
WACC= | 10.00% | ||||||
Year | Previous year FCF | FCF growth rate | FCF current year | Horizon value | Total Value | Discount factor | Discounted value |
1 | 0 | 0.00% | 12.76 | 12.76 | 1.1 | 11.6 | |
2 | 12.76 | 0.00% | 5.35 | 68.213 | 73.563 | 1.21 | 60.79587 |
Long term growth rate (given)= | 2.00% | PV= | Sum of discounted value = | 72.4 |
Where | |||
Total value = FCF + horizon value (only for last year) | |||
Horizon value = FCF current year 2 *(1+long term growth rate)/( WACC-long term growth rate) | |||
Discount factor=(1+ WACC)^corresponding period | |||
Discounted value=total value/discount factor |
Get Answers For Free
Most questions answered within 1 hours.