Firm C is considering the acquisition of Firm T. Firm C has estimated the cash flows, cost
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Question:
Firm C is considering the acquisition of Firm T. Firm C has estimated the cash flows, cost of capital, and growth rate for firm T shown below.
Answer the following questions to estimate the current value of firm T using the terminal value (aka horizon value) technique.
Cash flows, cost of capital, and growth rate for firm T
CF Year 1$12,100 Year 2 $13,500 Year 3 $16,300 Year 4 $18,400
WACC = 10%, g = 3% (assumed constant following year 4).
1.What is the terminal value of Firm T in Year 4?
2.What is the present value of the terminal value?
3.What is the present value of Year 1 - Year 4 cash flows?
4.Estimate the current value of firm T.
Related Book For
Financial Management Theory and Practice
ISBN: 978-1305632295
15th edition
Authors: Eugene F. Brigham, Michael C. Ehrhardt
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