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PSYCHO15rus [73]
3 years ago
10

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
Business
1 answer:
Musya8 [376]3 years ago
8 0

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

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