An analyst at the Starr Corp has estimated that the firms future cash flows for the next five years will equal $ 80 million per year a If the cost of capital for Starr is 12 , what is the value of Starr Corp s planning period cash flows spanning the next five years b It is extremely difficult to es...

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An analyst at the Starr Corp. has estimated that the firms future cash flows for the next

Question:

An analyst at the Starr Corp. has estimated that the firm’s future cash flows for the next five years will equal $ 80 million per year.
a. If the for Starr is 12%, what is the value of Starr Corp.’ s planning period cash flows spanning the next five years?
b. It is extremely difficult to estimate cash flows in the distant future, so it is standard practice to lump all the firm’s cash flows for years beyond a planning period of, say, five years into something called a terminal value. If companies in Starr’s industry are currently selling for five times their annual cash flow, what would you estimate the terminal value of Starr to be in year 5? c. Apply the same to the terminal value as to the planning period cash flows, and estimate the enterprise value of Starr today.
Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of... Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...