You have been given information on the cash flows for the next three years for AMG...
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You have been given information on the cash flows for the next three years for AMG Inc., a conglomerate. After growing at 10% a year for the next 3 years, the operating income is expected to grow 2.5% a year forever, after year 3. AMG will continue to generate the same return on caital it earned in the first 3 years forever. (Hint: Sustainable growth equation) Year EBIT (1-t) 1 2 3 $100 $110 $121 Reinvestment $80.00 $88.00 $96.80 FCFF $20.00 $22.00 $24.20 Estimate the terminal value at the end of year 3, if the cost of capital is 7.5%. You have been given information on the cash flows for the next three years for AMG Inc., a conglomerate. After growing at 10% a year for the next 3 years, the operating income is expected to grow 2.5% a year forever, after year 3. AMG will continue to generate the same return on caital it earned in the first 3 years forever. (Hint: Sustainable growth equation) Year EBIT (1-t) 1 2 3 $100 $110 $121 Reinvestment $80.00 $88.00 $96.80 FCFF $20.00 $22.00 $24.20 Estimate the terminal value at the end of year 3, if the cost of capital is 7.5%.
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SOLUTION To estimate the terminal value at the end of year 3 for AMG Inc we can use the sustainable ... View the full answer
Related Book For
Financial Management Theory and Practice
ISBN: 978-1305632295
15th edition
Authors: Eugene F. Brigham, Michael C. Ehrhardt
Posted Date:
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