Kappa Co’s sales were $200 last year. For the next 6 years, Kappa’s sales are expected to grow by 10% each year. Kappa’s EBIT margin is expected to be 30%. For years 1 and 2, Kappa’s depreciation and capital expenditures are expected to be 15% of sales. However, from year 3, Kappa’s capital expenditures will increase to 20% of sales. Kappa’s depreciation will be 15% of sales in year 3, but will increase to 20% of sales from year 4. Kappa’s working capital is always 10% of sales. After year 6, Kappa’s free cash flows are expected to grow at 1% per annum in perpetuity. Kappa’s tax rate is 40% and Kappa’s discount rate is 12%. 

What is Kappa’s firm value, based on the DCF model? (Round the final answer to the nearest two digits.)

Answer rating: 100% (QA)

To calculate Kappa Cos firm value based on the discounted cash flow DCF model we need to project the free cash flows for each year and then discount t... View the full answer