Diversified Industries, Inc. forecasts that its free cash flow in the coming year, i.e., at t = 1, will be -$18 million (negative), but its FCF at t = 2 will be $33 million. After Year 2, FCF is expected to grow at a constant rate of 4% forever. If the weighted average cost of capital is 13%, what is the firm's value of operations, in millions? Enter your answer rounded to two decimal places. Do not enter $ or comma in the answer box. For example, if your answer is $12,300.456 then enter as 12300.46 in the answer box.
| WACC= | 13.00% | ||||||
| Year | Previous year FCF | FCF growth rate | FCF current year | Horizon value | Total Value | Discount factor | Discounted value |
| 1 | 0 | 0.00% | -18 | -18 | 1.13 | -15.9292 | |
| 2 | -18 | 0.00% | 33 | 381.333 | 414.333 | 1.2769 | 324.48351 |
| Long term growth rate (given)= | 4.00% | Value of Enterprise = | Sum of discounted value = | 308.55 | |||
| Where | |||||||
| Total value = FCF + horizon value (only for last year) | |||||||
| Horizon value = FCF current year 2 *(1+long term growth rate)/( WACC-long term growth rate) | |||||||
| Discount factor=(1+ WACC)^corresponding period | |||||||
| Discounted value=total value/discount factor |
Diversified Industries, Inc. forecasts that its free cash flow in the coming year, i.e., at t...
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