What is the terminal value of firm t in year 4

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Firm C is considering the acquisition of Firm T. Firm C has estimated the cash flows, cost of capital, and growth rate for firm T shown below.

Answer the following questions to estimate the current value of firm T using the terminal value (aka horizon value) technique.

Cash flows, cost of capital, and growth rate for firm T

Year 1 $12,100

Year 2 $13,500

Year 3 $16,300

Year 4 $18,400

WACC = 10%, g = 3% (assumed constant following year 4).

Q1 What is the terminal value of Firm T in Year 4?

Q2 What is the present value of the terminal value?

Q3 What is the present value of Year 1 - Year 4 cash flows?

Q4 Estimate the current value of firm T.

Reference no: EM132645492

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