Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Corporation A expects to have FCF of $30M (t=1), $40M (t=2), and $38M (t=3). After year 3, analysts expect their FCF to grow at 5%

Corporation A expects to have FCF of $30M (t=1), $40M (t=2), and $38M (t=3). After year 3, analysts expect their FCF to grow at 5% per year. Their WACC is 15%. What is the terminal value on year 3 (TV_3) of corporation A? What is the enterprise value of Corporation A (EV_0)? You are unsure of the terminal growth rate estimate. Thus, you do more research and find that companies similar to corporation A trade at an EV/EBIT of 8. The projected EBIT for corporation A in year 3 is $56M. Using the exit multiple approach, what is the terminal value in year 3 (TV_3) of corporation A? What is the enterprise value of Corporation A (EV_0)? (if you do not know how to calculate TV_3 for A1 or A3, you can use $100M and continue on with your calculations)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Finance for Non Financial Managers

Authors: Pierre Bergeron

7th edition

176530835, 978-0176530839

More Books

Students also viewed these Finance questions