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XYZ Co is expecting the $5m of free cash flows in 2017, growing 3% in 2018,...

XYZ Co is expecting the $5m of free cash flows in 2017, growing 3% in 2018, 5% in 2019, 8% in 2020 and 12% in 2021. After 2021, free cash flows are expected to remain flat. Calculate the value of XYZ Co, assuming a cost of equity of 13%. (answer in millions. round to 1 decimal)

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Answer #1

Value is equal to the present value of free cash flows

,=5/(1.13) + 5(1.03)/(1.13)^2 + 5(1.03)(1.05)/(1.13)^3 + 5(1.03)(1.05)(1.08)/(1.13)^4 + 5(1.03)(1.05)(1.08)(1.12)/(1.13)^5 + 5(1.03)(1.05)(1.08)(1.12)/(13%)(1.13)^5

=$46.6 millions

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