Value of Operations Kendra Enterprises has never paid a dividend. Free cash flow is projected to be $80,000 and $100,000 for the

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Value of Operations Kendra Enterprises has never paid a dividend. Free cash flow is projected to be $80,000 and $100,000 for the

next 2 years, respectively; after the second year, FCF is expected to grow at a constant rate of 10%. The company's weighted average cost of capital is 18%. What is the terminal, or horizon, value of operations

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1 answer:

Musya8 [376] · Answer 1 · 2022-06-03T18:45:31+03:00

Answer:

Value of Operations Kendra Enterprises has never paid a dividend. Free cash flow is projected to be $80,000 and $100,000 for the next 2 years, respectively; after the second year, FCF is expected to grow at a constant rate of 10%. The company's weighted average cost of capital is 18%. What is the terminal, or horizon, value of operations

Terminal value = $1,783,333.33

Explanation:

Terminal value = FCF3/(WACC � g2)

FCF3 = FCF2 x 1.07 = $100,000 x 1.07 ? $107,000

= $107,000/(.13 - .07)

Terminal value = $1,783,333.33