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    Terminal value and discount back to the present

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    On January 1, 2004, shares of Company X trade at $6.50 per share, with 400 million shares outstanding. The company has net debt of $300 million. After building an earnings model for Company X, you have projected free cash flow for each year through 2010 as follows:

    Year 2004 2005 2006 2007 2008 2009 2010
    Free Cash Flow 110 120 150 170 200 250 280

    You estimate that the weighted average cost of capital (WACC) for Company X is 10% and assume that free cash flows grow in perpetuity at 3.0% annually beyond 2010, the final projected year.

    Calculate the terminal value and discount back to the present:

    1. $1,922.0 million
    2. $1,979.7 million
    3. $2,114.2 million
    4. $4,120.0 million

    Please select only 1 option out of the 4 options listed above.

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    TERMINAL VALUE AND DISCOUNT BACK TO THE PRESENT
    On January 1, 2004, shares of Company X trade at $6.50 per share, with 400 million shares outstanding. The company has net debt of $300 million. After building an ...

    Solution Summary

    The terminal value and discount back to the present are determined. The expert estimates the weighted average cost of capital for a Company X.

    $2.19