Question

You are trying to estimate the value of the XYZ Inc. company, as of the end of 2018. The after-tax cashflow from assets (FCFF) for the year ending 2018 is $145 million. The estimated WACC is 10%. What comes closest to the current value of the firm XYZ if the expected after-tax cashflows to assets for the next two years are expected to grow at 10% and then grow at a lower rate of 2% thereafter forever

Answer 1

Answer: $1,849 million.

Explanation:

From the question above, we are given that; The after-tax cashflow from assets (FCFF) for the year ending 2018 = $145 million and the estimated WACC = 10%.

Then, if the Growth rate = 2%, the value of the firm can be calculated as below;

The value of the form can be determined or calculated by using the formula below;

XYZ Inc. company(value of the firm) =(Cash flow) × (1+ Growth rate)/(WACC-Growth rate).

XYZ Inc. company value (value of the firm) = ( 145 ) × ( 1 + 2% )/( 10% - 2% ).

XYZ Inc. company value (value of the firm) =147.9/0.08.

XYZ Inc. company value (value of the firm) =1848.75. = 1849.