FCFE Model where there is abnormally high growth rates in the FCFE over a five year period. The TerrificTelephone Company is in an industry approaching maturity. Growth will be high and constant in the initial period and drop abruptly to stable growth after that. Th firm pays no dividends. Leverage is stable. The general rules for High Growth Models: 1. Find the expected future cash flows over the High Growth and Stable Growth Periods 2. Find the terminal value of the stock as of the end of the High Growth period. 3. Discount back all the future cash flows at the required rate of return Current financial available data is: FCFEo = Net Cash Flows from Operations - Net long-term capital investment activity + Net long-term borrowings. **All green and yellow cells require a number. Present Value of FCFE Template for Problem \#5 Year Expected Earnings Per Share (EPS) [years 1 thru 5 grow @1 i;Year 6@g2 ] Net Capital Expenditure * (1-debt Ratio) [years 1 thru 5 grow @g1; Year 6@g2] Working capital ( 20% of revenue) (1 debt ratio) [Time period Zero] |years 1 thru 5 grow igig 1 ; Year 6 (ajg2) FCFE for first 5 years based on High g1 and year 6 based on Stable g 1 PVIF (i) K1 Present Value of FCFE over each year in the High Growth Period (NOT year 6 ) Year 6@ Stable E1 What is the Present Value of FCFE over each year in the High Growth Period (NOT year 6)? d. Present Value of FCFE1 =$1.16 Present Value of FCFE2 =$1.12 (A) Present Value of FCFE3 =$1.19 Present Value of FCFE4 =$1.16 Present Value of FCFE5 =$1.13 a. Present Value of FCFE1 =$1.66 Present Value of FCFE2 =$1.62 Present Value of FCFE3 =$1.59 Present Value of FCFE4 =$1.56 Present Value of FCFE5 =$1.53 c. Present Value of FCFE1 =$1.66 Present Value of FCFE2 =$2.62 Present Value of FCFE3 =$1.59 Present Value of FCFE4 =$3.56 Present Value of FCFE5 =$1.53 b. Present Value of FCFE1 =$2.66 Present Value of FCFE2 =$2.62 FCFE Model where there is abnormally high growth rates in the FCFE over a five year period. The TerrificTelephone Company is in an industry approaching maturity. Growth will be high and constant in the initial period and drop abruptly to stable growth after that. Th firm pays no dividends. Leverage is stable. The general rules for High Growth Models: 1. Find the expected future cash flows over the High Growth and Stable Growth Periods 2. Find the terminal value of the stock as of the end of the High Growth period. 3. Discount back all the future cash flows at the required rate of return Current financial available data is: FCFEo = Net Cash Flows from Operations - Net long-term capital investment activity + Net long-term borrowings. **All green and yellow cells require a number. Present Value of FCFE Template for Problem \#5 Year Expected Earnings Per Share (EPS) [years 1 thru 5 grow @1 i;Year 6@g2 ] Net Capital Expenditure * (1-debt Ratio) [years 1 thru 5 grow @g1; Year 6@g2] Working capital ( 20% of revenue) (1 debt ratio) [Time period Zero] |years 1 thru 5 grow igig 1 ; Year 6 (ajg2) FCFE for first 5 years based on High g1 and year 6 based on Stable g 1 PVIF (i) K1 Present Value of FCFE over each year in the High Growth Period (NOT year 6 ) Year 6@ Stable E1 What is the Present Value of FCFE over each year in the High Growth Period (NOT year 6)? d. Present Value of FCFE1 =$1.16 Present Value of FCFE2 =$1.12 (A) Present Value of FCFE3 =$1.19 Present Value of FCFE4 =$1.16 Present Value of FCFE5 =$1.13 a. Present Value of FCFE1 =$1.66 Present Value of FCFE2 =$1.62 Present Value of FCFE3 =$1.59 Present Value of FCFE4 =$1.56 Present Value of FCFE5 =$1.53 c. Present Value of FCFE1 =$1.66 Present Value of FCFE2 =$2.62 Present Value of FCFE3 =$1.59 Present Value of FCFE4 =$3.56 Present Value of FCFE5 =$1.53 b. Present Value of FCFE1 =$2.66 Present Value of FCFE2 =$2.62