Consider the following forecasts for 2015-2019 of the Future Cash Flows, EBITDA
ID: 2647995 • Letter: C
Question
Consider the following forecasts for 2015-2019 of the Future Cash Flows, EBITDA and Future Interest Tax Shield for Firm X if the expansion were not to occur. Assume that the EBITDA Multiple is 5.0.
Assume a discount factor of 10% for the Free Cash Flows and the Continuation Value, and 7% for the Interest Tax Shield.
Firm Value
2015
2016
2017
2018
2019
Free Cash Flow of Firm
3,638
6,862
7,116
7,373
7,629
EBITDA
20,044
Interest Tax Shield
28
28
28
28
28
What is the Present Value (at December 2014) of the Free Cash Flows forecast of Firm X if the firm where not to do the expansion?
a)21,098
b)24,098
c)27,098
d)31,098
Firm Value
2015
2016
2017
2018
2019
Free Cash Flow of Firm
3,638
6,862
7,116
7,373
7,629
EBITDA
20,044
Interest Tax Shield
28
28
28
28
28
Explanation / Answer
Answer: c
Present Value of the free cash flow of the firm in 2014 = $24098
Year 2015 2016 2017 2018 2019 Total Free Cash Flow 3638 6862 7116 7373 7629 Discount Factor @10% 0.909 0.826 0.751 0.683 0.621 Discounted Cash flow 3307 5671 5346 5036 4737 24098Related Questions
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