Answered: ecall the Value of the Firm0 = Ʃ FCFt /…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter8: Basic Stock Valuation

Section: Chapter Questions

Problem 17P: Value of Operations Kendra Enterprises has never paid a dividend. Free cash flow is projected to be...

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4 - Recall the Value of the Firm₀ = Ʃ FCF_t / [1 + WACC]^t with t from 1 to ∞. The owners of Martial Arts Inc. [the owner/operator of a chain of karate dojos] are considering selling their business to a private equity firm. Next year’s end-of-year free cash flow (FCF₁) is expected to be $1.25 million, lower than recent years due to a major expansion. Free Cash Flow is expected to grow at the rates shown in the table below thereafter. Beginning in year 7 a constant growth rate of 4% is forecast. The company's WACC is 6.50%. What is the estimated intrinsic value of the firm in millions of dollars? Round to two decimals.

Year	0	1	2	3	4	5	6	7
Growth Rates			20.00%	15.00%	10.00%	8.00%	6.00%	4.00%

$54.57
$68.15
$70.31
$83.63
$98.28

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