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HIBIT 7.1 Illustration of the Discounted Free Cash Flow Approach to Valuation tep 1: Forecast expected future free cash flows 20x3 20 20X1 20x2 $20,000 $20,000 20X4 $25,000 $25.000 $25. 30.0 Net cash flows from operations Cash flow from selling all trucks Capital expenditure at the end of 20X2 Future free cash flows (20.000) 0 20,000 25,000 25,000 55.C Step 2: Determine the discount rate (10%) Step 3: Determine the discounted present value of future free cash flows 20,000 0 25.000 25,000 0.90909 0.82645 0.75131 0.68301 $18.182 $0 $18.783 $17,075 55.0 0.620 $34.1 Future free cash flows Present value factor 1/(1.107 Present values Total present value of future free cash flows Cost to launch business Net present value of business opportunity $88,191 (80,000) $ 8,191 Next, Choi must assess the cash flow risk associated with the truck rental business and determine the appropriate discou Q To learn more about present values, see Appendix A to this book. EXHIBIT 7.1 Illustration of the Discounted Free Cash Flow Approach to Valuation Step 1: Forecast expected future tree cash flows 20x3 20X4 20x1 $20,000 20x2 $20,000 $25,000 $25,000 20x5 $25.000 30,000 Net cash flows from operations Cash flow from selling all trucks Capital expenditure at the end of 20X2 Future free cash flows 20.000 (20.000) 0 25,000 25,000 55.000 Step 2: Determine the discount rate (10%) Step 3: Determine the discounted present value of future free cash flows 20,000 0.90909 $18.182 0 0.82645 $ 0 25.000 0.75131 $18,783 25,000 0.68301 $17.075 55.000 0.62092 $34.151 Future free cash flows x Present value factor 1/(1.109 Present values Total present value of future free cash flows Cost to launch business Net present value of business opportunity $88,191 (80,000) $ &191 Next Chol must assess the cash flow risk associated with the truck rental business and determine the appropriate discount rate. For now, let's just say its 10 M HIBIT 7.1 Illustration of the Discounted Free Cash Flow Approach to Valuation tep 1: Forecast expected future free cash flows 20x3 20 20X1 20x2 $20,000 $20,000 20X4 $25,000 $25.000 $25. 30.0 Net cash flows from operations Cash flow from selling all trucks Capital expenditure at the end of 20X2 Future free cash flows (20.000) 0 20,000 25,000 25,000 55.C Step 2: Determine the discount rate (10%) Step 3: Determine the discounted present value of future free cash flows 20,000 0 25.000 25,000 0.90909 0.82645 0.75131 0.68301 $18.182 $0 $18.783 $17,075 55.0 0.620 $34.1 Future free cash flows Present value factor 1/(1.107 Present values Total present value of future free cash flows Cost to launch business Net present value of business opportunity $88,191 (80,000) $ 8,191 Next, Choi must assess the cash flow risk associated with the truck rental business and determine the appropriate discou Q To learn more about present values, see Appendix A to this book. EXHIBIT 7.1 Illustration of the Discounted Free Cash Flow Approach to Valuation Step 1: Forecast expected future tree cash flows 20x3 20X4 20x1 $20,000 20x2 $20,000 $25,000 $25,000 20x5 $25.000 30,000 Net cash flows from operations Cash flow from selling all trucks Capital expenditure at the end of 20X2 Future free cash flows 20.000 (20.000) 0 25,000 25,000 55.000 Step 2: Determine the discount rate (10%) Step 3: Determine the discounted present value of future free cash flows 20,000 0.90909 $18.182 0 0.82645 $ 0 25.000 0.75131 $18,783 25,000 0.68301 $17.075 55.000 0.62092 $34.151 Future free cash flows x Present value factor 1/(1.109 Present values Total present value of future free cash flows Cost to launch business Net present value of business opportunity $88,191 (80,000) $ &191 Next Chol must assess the cash flow risk associated with the truck rental business and determine the appropriate discount rate. For now, let's just say its 10 M
