You have been asked to review the valuation of Sprinbok Enterpries, a sporting goods firm. The analyst discounted expected cashflows to the firm to arrive at a value of $150 Million for the firm. In making this estimate, though, the analyst used a 10% cost of capital, assumed that current after-tax operating income of $5 Million a year would grow 15% a year for the next 5 years and then applied a multiple of 15 to the after-tax operating income in year 5 to arrive at the terminal value for the firm.
While you agree with the analysts' estimate of the cost of capital and his forecasts of earnings and cashflows in the next 5 years, you expect operating income to grow 3% a year and the firm to earn a return on capital equal to its cost of capital beyond year 5.
Instructions: Estimate the correct value for this firm today.