Question
An analyst forecasts a firm's nominal Equity Free Cash Flow (EFCF) to be: $10 million next year (t=1); $20 million the year after (t=2); $30
An analyst forecasts a firm's nominal Equity Free Cash Flow (EFCF) to be:
$10 million next year (t=1);
$20 million the year after (t=2);
$30 million in 3 years (t=3); and
As at year 3, the terminal value can be calculated based on similar firms' expected price-to-sales multiple of 2.
The earnings over year 3 are twice the EFCF at that time since the payout ratio is 50% and all EFCF is comprised of dividends.
The net profit margin is forecast to be 10% in year 3.
Note that the year 3 terminal valuation price-to-sales multiple excludes the cash flows paid as at year 3 as is normal.
The nominal required return on equity is 6% pa.
All rates are effective annual rates.
What is the firm's current market capitalisation of equity?
Select one:
a.$1107.8186 million
b.$581.0356 million
c.$317.6441 million
d.$291.5432 million
e.$60.2958 million
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