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Terminal value homework problem

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Terminal Value Homework Problem

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. Using these estimates, estimate the current value of firm T using the terminal value (aka horizon value) technique.

 

Year 1

Year 2

Year 3

Year 4

CF

$2,130

$2,420

$2,890

$3,210

WACC = 12%, g = 3% (assumed constant following year 4). Check Answer: Estimated Firm Value Today = $31,275

Hint: After calculating the terminal value at year 4, just combine that number with the year 4 CF and that will be CF4 for the calculator input. You can then use the cash flow worksheet on your financial calculator to solve, just assume that CF0 = $0.

Reference no: EM131537275

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