Question

Nut and Bolt guy Inc, sells nuts, bolts, fasteners and other related equipment. The CFO projects that net FCF for the next three years will be $11,000, $12,500 and $16,000, respectively. After that, the cash flows are expected to increase by 4.5 percent annually. What is the value of the firm if the WACC is 12.2%?

Answer 1

$184791

Step-by-step explanation:

The calculation of the value of the firm is given below:

Year Future Cash Flow PVF at 12.2% PV of Cash Flow

1 11000 0.891 9801

2 12500 0.794 9925

3 16000 0.708 11328

Total 31054

Present Value of Terminal Value

= [16000 × (1 + 0.045) ÷ 0.122 - 0.045] × 0.708

= [16720 ÷ 0.077] × 0.708

= 153737

Now

value of Firm = 31054 + 153737

= $184791