Milestone One: Time Value of Money * Dollar amounts are in millions $ (please fill in...

Transcribed Image Text:

Milestone One: Time Value of Money * Dollar amounts are in millions $ (please fill in YELLOW cells) Question 1. Interest Rate FCF Years FCF in dollars* Py* 5% Instructions and Explanations 2022 2021 2020 $ 5,855.00 $ 7,157.00 $ 6,428.00 $ (5,576.19) $ (6,491.61) $ (5,552.75) Free cash flows (FCF), for this exercise is difference between cash generated from operating income minus capital expenses at the end of your company's fiscal or calendar year. The present value of free cash flows is one method of determining a company's value to a potential buyer. Note: For Milestone One, please use the adjusted free cash flows calculated for your selected company on Tab 2 (Selected Co. for Project) of this Excel workbook. Use 5% as the interest rate for these questions. Total Pv* $ (17,620.55) *In millions Question 2. Interest Rate FCF-Years FCF in dollars* Pv* Total Pv* *In millions 5% 2022 $ 5,855.00 $ 2021 7,157.00 $ 2020 6,428.00 $ (5,576.19) $ (6,491.61) $ (5,552.75) $ (17,620.55) For the purpose of this exercise, what will happen to the total PV if your selected company's free cash flows for each year reported in Question 1 were reduced by 10%? Question 3. Interest Rate 7% Required Rate of Return for Risk Associated With Projected Future Three Year's Free Cash Flows. 2022 2021 2020 FCF - Years FCF in dollars* Pv* *In millions Total Pv* 5% Most Recent Year's Cash Flow fom Queston 1. 2023 $ 5,855.00 $ 7,157.00 $ 6,428.00 $5,855.00 $ (6,007.48) $ (6,251.20) $ (5,247.16) $ (5,576.19) $ (17,505.84) Your selected company is projecting that free cash flows for the next three (3) years will increase by 3% annually. Using the Most Recent Year's free cash flows from Question 1 above, increase each of the future free cash flows by 3% (will self-populate in the yellow highlighted cells). As there is a chance that these increases may not occur as projected, a buyer who may be willing to purchase the company before the increases occur, will account for this risk by using a required rate of return of 7%. What price would the potential buyer be willing to pay based upon the known free cash flows and the future projected free cash flows? Milestone One: Time Value of Money * Dollar amounts are in millions $ (please fill in YELLOW cells) Question 1. Interest Rate FCF Years FCF in dollars* Py* 5% Instructions and Explanations 2022 2021 2020 $ 5,855.00 $ 7,157.00 $ 6,428.00 $ (5,576.19) $ (6,491.61) $ (5,552.75) Free cash flows (FCF), for this exercise is difference between cash generated from operating income minus capital expenses at the end of your company's fiscal or calendar year. The present value of free cash flows is one method of determining a company's value to a potential buyer. Note: For Milestone One, please use the adjusted free cash flows calculated for your selected company on Tab 2 (Selected Co. for Project) of this Excel workbook. Use 5% as the interest rate for these questions. Total Pv* $ (17,620.55) *In millions Question 2. Interest Rate FCF-Years FCF in dollars* Pv* Total Pv* *In millions 5% 2022 $ 5,855.00 $ 2021 7,157.00 $ 2020 6,428.00 $ (5,576.19) $ (6,491.61) $ (5,552.75) $ (17,620.55) For the purpose of this exercise, what will happen to the total PV if your selected company's free cash flows for each year reported in Question 1 were reduced by 10%? Question 3. Interest Rate 7% Required Rate of Return for Risk Associated With Projected Future Three Year's Free Cash Flows. 2022 2021 2020 FCF - Years FCF in dollars* Pv* *In millions Total Pv* 5% Most Recent Year's Cash Flow fom Queston 1. 2023 $ 5,855.00 $ 7,157.00 $ 6,428.00 $5,855.00 $ (6,007.48) $ (6,251.20) $ (5,247.16) $ (5,576.19) $ (17,505.84) Your selected company is projecting that free cash flows for the next three (3) years will increase by 3% annually. Using the Most Recent Year's free cash flows from Question 1 above, increase each of the future free cash flows by 3% (will self-populate in the yellow highlighted cells). As there is a chance that these increases may not occur as projected, a buyer who may be willing to purchase the company before the increases occur, will account for this risk by using a required rate of return of 7%. What price would the potential buyer be willing to pay based upon the known free cash flows and the future projected free cash flows?

Answer rating: 100% (QA)

To calculate the present value PV of the future projected free cash flows and determine the price th... View the full answer