What is the value of the firm future cash flows

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Q1: Canton Corporation anticipates that it will earn firm FCFs of $4 million per year for each of the next five years. Beginning in year 6, the firm will earn FCF of $5 million per year for the indefinite future. If Canton's cost of capital is 12%, what is the value of the firm's future cash flows?

Q2: You have worked in Canton Corporation for the last five years and have a more optimistic view of the firm's future FCFs. In your personal/professional opinion, Canton could generate $4 million FCF next year, $4.5 million in year two, $5 million in year three, $5.5 million in year four, $6 million in year five, and then maintain a FCF of $ 6.8 million for the indefinite future. If your estimates were correct, what is the value of the firm's future cash flows at 12% cost of capital?

Q3: Your colleague Sam disagree with you. She feels the FCFs should be modeled with a two-stage growth rate. During the first five years, Sam estimates the growth rate of FCF should be 8% per year starting at $4 million in year 1. Starting year 6, Canton's FCF will grow at 2% per year for the indefinite future. Given 12% cost of capital, what is the value of the firm's future cash flows under this set of assumptions?

Reference no: EM131979764

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