Question

Free Cash Flow

100

Growth rate

2%

Tax Rate

1%

Cost of Capital

5%

Debt-to-total value

50%

Given the data in the above, what is the terminal value of the business (using the growing perpetuity formula)?

Answer 1

Step-by-step explanation:

Terminal value of business Formula = FCF (1+g)/(WACC- g)

Where:

FCF= current free cash flow = 100

g= Growth rate = 2%

WACC = Weighted average cost of capital = Cost of capital = 5%

Terminal Value of the business= FCF (1+g)/(WACC- g)

Terminal Value of the business= 100 (1+2%)/(5%- 2%)

Terminal Value of the business= 3,400