Question
Lakeisha was calculating the value of a potential acquisition of Plexxar Corporation that would permanently change the cash flows of her own company. In doing
Lakeisha was calculating the value of a potential acquisition of Plexxar Corporation that would permanently change the cash flows of her own company. In doing her Discounted Cash Flow (DCF) Valuation, she knew she could only reliably forecast the cash flows of Plexxar for four (4) years. In an attempt to capture the total value of the acquisition, she decided to calculate a so-called Terminal Value (growing perpetuity) for Years 5 and beyond that would account for all the years of potential cash flow after the final forecasted 4th year. She knew the following:
4th (final) forecasted year cash flow ("C") | $2,520,000 |
Cost of Capital (Discount Rate "r") | 10.0% |
Perpetual growth rate ("g") of cash flows | 2.0% |
What was the PV of this Terminal Value?
Step by Step Solution
3.36 Rating (159 Votes )
There are 3 Steps involved in it
Step: 1
The formula for calculating the present value of a growing perpetuity is PV C r ...
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Financial Reporting Financial Statement Analysis And Valuation A Strategic Perspective
Authors: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
8th Edition
1285190904, 978-1305176348, 1305176340, 978-1285190907
