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A company is undergoing a restructuring, and its free cash flows are expected to vary considerably during the next few years. However, the FCF is expected to be $85.00 million in Year 5, and the FCF growth
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11 votes
11 votes
A company is undergoing a restructuring, and its free cash flows are expected to vary considerably during the next few years. However, the FCF is expected to be $85.00 million in Year 5, and the FCF growth rate is expected to be a constant 6.5% beyond that point. The weighted average cost of capital is 12.0%. What is the horizon (or continuing) value (in millions) at t

User Jerico
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24 votes
24 votes

Answer:

Value of company = $982.16

Step-by-step explanation:

The free cash flow is the cash generated by a company that is not retained and reinvested. It is the cash flow available to all providers of capital . It is available to pay dividend or finance other project

The value of the company would be the present value of its free cash flow discounted at the weighted average cost of capital.

Value of company )year 4= 85/(0.12-0.065) = 1,545.45

Value of company (in year 0) = 1,545.45× 1.12^(-4)= 982.16

Value of company = $982.16 millions

User JJacquelin
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