Respuesta :
Terminal value is $2,303,571.43.
As per the given data,
we need to calculate the value of Kendra’s operations.
According to above given question,
it is given that,
Free cash flow of Kendra Enterprises is projected to be $80,000 and $100,000 for the next 2 years.
After the second year, FCF is expected to grow at a constant rate of 8%..
The company’s weighted average cost of capital is 12%.
Also, it is given that Kendra Enterprises has never paid a dividend.
We have to find the present value
Year 1 Cash Flow 80000/(1+12%)^1 = 71,428.57
Year 2 Cash Flow 100,000/(1+12%)^2 = 79,719.39$
Terminal value
The formula to calculate terminal value can be given as follows:
[FCF x (1 + g)] / (d – g)
Where:
FCF stands for free cash flow for the last forecast period
g = terminal growth rate
d = discount rate (which is usually the weighted average cost of capital)
Now, by putting values in above stated terminal formula, we get:
100,000×(1+8%)/ (12%-8%) = 2,700,000
Therefore, Present Value of terminal value can be given as:
Present Value of TV = Unadjusted Terminal Value /[tex](1 + Discount Rate)^{Years.}[/tex]
By putting values, we get:
2,700,000/(1+12%)² =2,152,423.47.
Thus, total value is year 1 + year2 + terminal value = $2,303,571.43
Therefore, terminal value is $2,303,571.43.
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