Question

Ryan Enterprises forecasts the free cash flows (in millions) shown below. Assume the firm has zero non-operating assets. The weighted average cost of capital is 13.0%, and the FCFs are expected to continue growing at a 5.0% rate after Year 3. What is the firm’s total corporate value (in millions)? Do not round intermediate calculations.

Year	1	2	3
FCF	-$15.0	$10.0	$55.0

Answer 1

Calculate the value of the firm as follows:

в C 28 26 Year Particulars 27 1 FCF 2 FCF 3 FCF 30 3 Value at the end D Amount PVF @ 13% PV of amount -$15.00 0.884955752 -$13.274336 $10.00 0.783146683 $7.831467 $55.00 0.693050162 $38.117759 $721.88 0.693050162 $500.295586 Value of firm $532.97 31

Formulas:

D FCF A 26 Year 27 1 28 2 29 3 30 3 31 B Particulars Amount -15 FCF 10 FCF Value at the end 1=(C29*(1+5%))/(13%-5%) Value of firm PVF @ 13% PV of amount = 1/(1+13%)^A27 =C27*D27 =1/(1+13%)^A28 =C28*D28 =1/(1+13%)^A29 =C29*D29 = 1/(1+13%)^A30 =C30*D30 =SUM(E27:E30) 55