Finance
Terminal Value Homework Problem
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. Using these estimates, estimate the current value of firm T using the terminal value (aka horizon value) technique.
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Year 1
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Year 2
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Year 3
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Year 4
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CF
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$2,130
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$2,420
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$2,890
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$3,210
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WACC = 12%, g = 3% (assumed constant following year 4). Check Answer: Estimated Firm Value Today = $31,275
Hint: After calculating the terminal value at year 4, just combine that number with the year 4 CF and that will be CF4 for the calculator input. You can then use the cash flow worksheet on your financial calculator to solve, just assume that CF0 = $0.