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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 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.

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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 provided by:
Radhika Lakshmi, MPhil
Education
  • MPhil, Madurai Kamaraj University
  • MCom, Annamalai University
  • IATA, International Air Transport Association
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