Question

Michonne Corp.'s Free Cash Flow (FCF) for the most recent year (year 0) is $730 (million). FCF is expected to grow by 14% next year (1 year from now), by 10% the year after that (2 years from now), and by 5% per year thereafter. Michonne's WACC is estimated at 8%. The estimated Enterprise Value (Value of Operations) for Michonne is $____________(million).

Answer 1

enterprise value = $29,024.26 million

Step-by-step explanation:

first we must calculate the terminal value in year 2:

terminal value = FCF₃ / (WACC - g)

• FCF₃ = $730 x 1.14 x 1.1 x 1.05 = $961.191
• WACC = 8%
• g = 5%

terminal value = $961.191 / (8% - 5%) = $32,039.70

enterprise value = $832.2/1.08 + $915.42/1.08² + $32,039.70/1.08² = $770.556 + $784.825 + $27,468.879 = $29,024.26 million