a. Given the table above and the resulting valuation, what terminal multiple did the analyst use to capture the free-cash flows from year 6 onwards?

b. What is the implicit perpetual growth rate used by the analyst?

An analyst is assessing the potential value of a European stock. As part of his DCF valuation, he generated a report that estimates free cash flows for the next five years (see the table below) and the appropriate discount rate or 8.4%. Using these estimates, he determined that the total value of the company is approximately 470 million Euros (470,000,000) and that the value of equity is 260 million Euros (260,000,000). Net debt outstanding was 210 million Euros (210,000,000). The following table shows part of the analyst's DCF calculations. (All values are in millions of Euros. Assume that free cash flows of year t are paid at the end of year.) Estimated FCFS Discount Factor Product of Year in million (Euro) at 8.4% (a) and (b) (a) (b) 1 22.5 0.9225 20.756 2 25.7 0.8510 21.871 3 27.4 0.7851 21.511 4 28.8 0.7242 20.858 5 29.7 0.6681 19.843 FCF 11 1+SFCF = FCF10 X r-8FCF r-gFCF 10 "terminal multiple