Data:
Assume that after 2020, the firm's free cash flows will continue to grow at 4% in perpetuity. Calculate the present value of all future free cash flows from 2021 on wards. Show your work.
| Date | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 |
| FCF | 5.04 | 5.87 | 6.77 | 7.77 | 8.79 | 9.93 | 11.16 | 12.45 | 13.85 | 15.33 | 16.93 | 18.49 | 13.90 |
use 10.25% cost of capital to discount all free cash flows.
Compute cash flows from 2021 and into perpetuity
Risk free rate is 4.57%
Present value of perpetuity = Next expected inflow/(Required rate of return- growth rate)
Hence, present value of free cash flows 2021 onwards = 13.90(1.04)/(10.25%- 4%)
=$231.296
Data: Assume that after 2020, the firm's free cash flows will continue to grow at 4%...