Question

Where is the error? Assumptions WACC Perpetuity growth rate 7.00% 3.00% 20x0A Unlevered Free Cash Flows $325.0 NPV of Unlevered Free Cash Flow Terminal Value PV of Terminal Value Projections 20x1E 20x2 20x3E $335.0 $348.0 $362.0 $912.5 $9,321.5 $7,609.1 Enterprise Value Debt Cash Equity Value Diluted shares outstanding Implied value per share $8,541.9 541.9 261.0 $8,261.0 826.000 $10.00 O A. NPV of Unlevered Free Cash Flow OB. Terminal Value C. PV of Terminal Value O D. Enterprise Value E. Equity Value

Answer 1

Hi

Enterprise value is the sum of present value of future unlevered cash flows.

Here

NPV of unlevered cash flow = 335/(1+7%) + 348/(1+7%)^2+ 362/(1+7%)^3

= $912.5

Terminal value = 362*(1+3%)/(7%-3%)

= $9,312.5

PV of terminal cash flow = 9312.5/(1+7%)^3 = $7,609.1

Enterprise value = 912.5 + 7609.5 = $8,521.7

Hence Enterprise value is an error

Thanks