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Current value of the firm

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As a part of the Final project Assignment, on Saturday, October 25, 2008, of this week you will do the Valuation using Free Cash Flows (FCF). The following free cash flows (in $ Million) are projected for the next five years. The free cash flows are expected to grow at a stable rate of 7% for every year after year 5. The opportunity cost of capital is 10%. Calculate the current value of the firm using the Constant Growth Model after year 5. As a first step calculate the terminal value of the firm at the end of year 5.

Year Year 1 Year 2 Year 3 Year 4 Year 5
Free Cash Flow 5 12 24 44 69

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The solution explains step-by-step how to calculate the current value of the firm using the Constant Growth Model after year 5.

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The Constant Growth Model gives the present value of a growing perpetuity. The cash flows from year 6 onward grow at a constant rate of 7%. We use the Constant Growth Model ...

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