Imagine that you want to use the discounted cash flow valuation method to find the fundamental value of BO2 Plc. You have managed to generate a projection of the free cash flow to the firm (FCFF) for the company for the next 5 years:

One year from nowTwo years from nowThree years from nowFour years from nowFive years from now8 million10 million13 million14 million17 million

Following this prediction period, you anticipate that the cash flow will continue to grow perpetually at a rate of 4% per annum. The weighted average cost of capital (WACC) is 7%. Assume that the company will never go bankrupt.

• a.Using the WACC rate, calculate the present value of the free cash flows to the firm to 2 decimal points over the next five years. (6 marks)

• b.Compute the terminal value of BO2 Plc and discount it back to express it in present value terms (again to two decimal places). (6 marks)

• c.Calculate the value of BO2 Plc. Figures should be rounded to two decimal places. (4 marks)

• d.Calculate the fundamental stock value if the market value of debt is 85 million and the number of outstanding shares is 10 million. Round the figures to two decimal places. (4 marks)