Question: From your estimates of the financial ratios (Turnover, Margin, and Leverage; and also Tax expense, intterest expense) for year 0, and also the explicit sales forecast for the next 5 years (that is, H = 5), you calculate the following cash flows, DCF (for the next five years (1-5)) assume that g= 5% and re= 12% (D0 = 100 is the last historical previous cash flow)
DCF
0 100
1 110
2 125
3 140
4 150
5 160
A. What is the current value of the company?
B. The growth rate of the Cash Flows becomes 8% (beginning with the CF of 100 in period 0). What is the value of the firm?
C. Comment on the differences in these two approches and the reasons for their different values.