Q1.

Nirvana Corporation is expected to generate the following free cash flows over the next five years:

After year 5, the free cash flows are expected to grow perpetually at the industry average of 3% per year. Assume all cash flows come in at the middle of each year.

a. Using the discounted free cash flow model and an after-tax weighted average cost of capital of 12% to estimate the enterprise value of Nirvana.

b. If Nirvana has no excess cash, debt of $340 million, and 50 million shares outstanding, estimate its share price.

2 1 3 4 Year FCF ($ million) | 1 44 62 73 85 90