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Yr FCF 1 6M 2 10M A firm expects the free cash flows listed above. After...

Yr FCF
1 6M
2 10M


A firm expects the free cash flows listed above. After year 2, the firm expects free cash flows will continue to grow indefinitely at the industry average of 5%. The firm estimates its cost of capital to be 8%. If the firm has debt of $40 million and cash of $20 million, what is its enterprise value? Assume 10 million shares outstanding.

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Answer #1

rate positively ..

Computation of enterprise value
Year FCF Terminal cash flow Total cash flow PVIF @ 8% Present value
1 6 6 0.925926 $     5.56
2 10 350 360 0.857339 $ 308.64
$ 314.20
Terminal cash flow = 350
10*105%/(8%-5%)
Therefore answer = $ 314.20
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