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s2008m [1.1K]
3 years ago
6

Kendra Enterprises has never paid a dividend. Free cash flow is projected to be $80,000 and $100,000 for the next 2 years, respe

ctively; after the second year, FCF is expected to grow at a constant rate of 5%. The company's weighted average cost of capital is 16%. What is the terminal, or horizon, value of operations? (Hint: Find the value of all free cash flows beyond Year 2 discounted back to Year 2.) Round your answer to the nearest cent. $ Calculate the value of Kendra's operations. Do not round intermediate calculations. Round your answer to the nearest cent. $
Business
1 answer:
Lena [83]3 years ago
8 0

Answer:

$856,376.30

Explanation:

What is the terminal, or horizon, value of operations?

2 years, FCF 1 = 80,000, FCFC 2 = 100,000, Growth rate= 5%, WACC = 16%

==> 100,000*(1+0.05)/(0.16-0.05)

==> 100,000*(1.05/0.11)

==> 100,000*(9.545454(

==> 954,545

Calculating the value of Kendra's operations.

Years  Cash-flows   PVF at 16%    Present value

1           800,000       0.86206         68964.80

2          105,000        0.74316           78031.80

2          954,545        0.74316           <u>709379.70</u>

            Total value                           <u>856,376.30</u>

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