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 Dec 19, 2020

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.

Expert Solution

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

Archived Solution

Unlocked Solution

You have full access to this solution. To save a copy with all formatting and attachments, use the button below.

Already a member? Sign In

Important Note: This solution is from our archive and has been purchased by others. Submitting it as-is may trigger plagiarism detection. Use it for reference only.

For ready-to-submit work, please order a fresh solution below.

Or get 100% fresh solution

Get Custom Quote