Question
A financial analyst has produced the following free cash flow forecast for the MBA Corporation: Year Free Cash Flow (FCF) 1 - $180,000 2 -
A financial analyst has produced the following free cash flow forecast for the MBA Corporation:
| Year | Free Cash Flow (FCF) |
| 1 | - $180,000 |
| 2 | - $190,000 |
| 3 | - $99,000 |
| 4 | $50,000 |
| 5 | $75,000 |
After year 5, the analyst estimates the FCFs will become stable and grow at 5 percent per year thereafter. The firm uses a 15 percent WACC to evaluate projects with a similar risk. What is your estimation of terminal value?
Refer to the previous question.
What is your estimation of the valuation of the firm?
| $50,000 | ||
| $85,963 | ||
| $92,119 | ||
| $247,369 | ||
| $500,685 |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
To estimate the terminal value of the MBA Corporation we will use the Gordon Growth Model also known ...
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Foundations of Finance The Logic and Practice of Financial Management
Authors: Arthur J. Keown, John D. Martin, J. William Petty
8th edition
132994879, 978-0132994873
