Question
The CEO of Buffalo Bobs Chicken Wings is considering selling her firm, and wants to know what it is worth. She estimates that the firms
The CEO of Buffalo Bobs Chicken Wings is considering selling her firm, and wants to know what
it is worth. She estimates that the firms current year free cash flow is $4 million. She asks her CFO
to create several estimates of the firms value. Scenario 1 is to be based on a 4% annual growth rate
forever; the second scenario is to reflect a 6% annual growth rate for the next five years and 3%
thereafter. The firms weighted average cost of capital for both scenarios is estimated to be 10%.
What is the value of the firm under scenario 1 and scenario 2?
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