Question: You are an equity analyst valuing Edinburgh plc. It is a growth company and is not planning to pay dividends for some years, since it

You are an equity analyst valuing Edinburgh plc. It is a growth company and is not planning to pay dividends for some years, since it will reinvest all its retained earnings back into the business instead of paying dividends in its early years.

You decide to use a Discounted Free Cash Flow model to value Edinburgh plc. You forecast that it will have free cash flow of £5 million one year from now (t=1), which will grow by 6% per year thereafter over the next 9 years, up to and including the free cash flow in ten years' time (t = 10), in a high growth stage.

After this, you forecast that the free cash flow will grow at 1% afterwards (forever), in a low growth stage? The firm's Weighted Average Cost of Capital (WACC) is estimated to be 11%?

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The present value of Edinburgh plc can be calculated as follows PV FCF11WACC FCF21WACC2 FCF101WACC10 FCF1WACC101WACCg Where FCF1 to FCF10 are the free cash flow for each year WACC is the firms Weighte... View full answer

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