Question
Exercise 7-3 Financial analysts forecast free cash flows of $50,000, $60,000, and $70,000 for the 2017-2019 for Redlands, Inc. The firms weighted average cost of
Exercise 7-3
Financial analysts forecast free cash flows of $50,000, $60,000, and $70,000 for the 2017-2019 for Redlands, Inc. The firms weighted average cost of capital is 7%.
Required: Determine the present value of forecast free cash flows by completing the following table.
| Free Cash Flow | Time Value Factor 7% WACC | Present Value at 12/31/16 |
| FCF2017: $50,000 | .93458 (n= 1) | |
| FCF2018: 60,000 | .87344 (n= 2) | |
| FCF2019: 70,000 | .81630 (n= 3) | |
| Total |
Use the information in exercise above and assume that Redlands free cash flows will increase by 4% annually after the forecast horizon.
Required: Determine the firm value of Extreme Edge by completing the following table.
| Free Cash Flow | Time Value Factor 7% WACC | Present Value at 12/31/16 |
| FCF2017: $50,000 | .93458 (n= 1) |
|
| FCF2018: 60,000 | .87344 (n= 2) |
|
| FCF2019: 70,000 | .81630 (n= 3) |
|
| FCFTV: | .76290 (n= 4) |
|
| Firm Value |
|
|
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