Question
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)
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