Exercise 7-3 Financial analysts forecast free cash flows of $50,000, $60,000, and $70,000 for the...
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Accounting
Exercise 7-3
Financial analysts forecast free cash flows of $50,000, $60,000, and $70,000 for the 2017-2019 for Redlands, Inc. The firms weighted average cost of capital is 7%.
Required: Determine the present value of forecast free cash flows by completing the following table.
Free Cash
Flow
Time Value Factor 7% WACC
Present Value at 12/31/16
FCF2017: $50,000
.93458 (n= 1)
FCF2018: 60,000
.87344 (n= 2)
FCF2019: 70,000
.81630 (n= 3)
Total
Use the information in exercise above and assume that Redlands free cash flows will increase by 4% annually after the forecast horizon.
Required: Determine the firm value of Extreme Edge by completing the following table.
Free Cash
Flow
Time Value Factor 7% WACC
Present Value at 12/31/16
FCF2017: $50,000
.93458 (n= 1)
FCF2018: 60,000
.87344 (n= 2)
FCF2019: 70,000
.81630 (n= 3)
FCFTV:
.76290 (n= 4)
Firm Value
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