Year 1 2 3 4 Free Cash Flow $12 million $18 million $22 million $26 million Conundrum Mining is expected to generate the abo

Question

2 years ago

11

Year 1 2 3 4 Free Cash Flow $12 million $18 million $22 million $26 million Conundrum Mining is expected to generate the abo

ve free cash flows over the next four years, after which they are expected to grow at a rate of 3% per year. If the weighted average cost of capital is 13% and Conundrum has cash of $80 million, debt of $60 million, and 30 million shares outstanding, what is Conundrums expected terminal enterprise value

Business

1 answer:

makkiz [27] · Answer 1 · 2022-08-24T20:52:37+03:00

Answer:

$463.67 million

Explanation:

The computation of the expected terminal enterprise value is shown below:

Terminal Enterprise value is

= Free cash flow × (1 + growth rate) ÷ (Weighted average cost of capital - growth rate)

= $26 million × (1.07) ÷ (0.13 - 0.07 )

= $27.82 million ÷ 0.06

= $463.67 million

We simply applied the above formula to determine the expected terminal value

Year 1 2 3 4 Free Cash Flow ​$12 million ​$18 million ​$22 million ​$26 million Conundrum Mining is expected to generate the abo

Year 1 2 3 4 Free Cash Flow $12 million $18 million $22 million $26 million Conundrum Mining is expected to generate the abo