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Homework answers / question archive / The present value, today, of the terminal (perpetuity) value equity cash flow that begins in 8 years is $6,700,000 assuming a cost of equity equal to 8%

The present value, today, of the terminal (perpetuity) value equity cash flow that begins in 8 years is $6,700,000 assuming a cost of equity equal to 8%

Finance

The present value, today, of the terminal (perpetuity) value equity cash flow that begins in 8 years is $6,700,000 assuming a cost of equity equal to 8%. The growth rate required for the continuation value (terminal value perpetuity) term is 2%?  Compute the year 8 equity free cash flow (beginning of the growing perpetuity) to the second decimal point.  

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Value in 7 years = 6,700,000(1.08)? = $11,482,622.60

Calculating Free Cash Flow in year 8,

Free cash flow = 11,482,622.60(0.08 - 0.02)

Free cash flow = $688,957.36