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    Value of Company and Discounted Cash Flows

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    What is the value of a company with the following cash flows?

    Year1 - $3 million
    Year 2 - $6 million
    Year 3 - $2 million
    Years 4 - 10 - $2.5 million year 4, growing at 30% annually through year 10
    Year 11 - 8% annual growth from year 10 cash flow indefinitely
    WACC of 11.5%

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    Solution Preview

    Please refer to the attached file for the complete solution

    Solution:
    Value of the company = Sum of PV of free cash flows in the non-constant growth periods + PV of value of company at the end of Non-constant growth period

    Below given are the cash flows in the non-constant growth periods (till year 10) and their sum of PV.
    Year Cash flows PV factor PV of
    at 11.5% cash flows
    1 $3,000,000 ...

    Solution Summary

    A step by step explanation on determining the value of a company according to its annual cash flow. Answer includes an attached Excel spreadsheet breaking down the answer.

    $2.19