Consider the following forecasts for 2015-2019 of the Future Cash Flows, EBITDA
ID: 2647996 • 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 Interest Tax Shield forecast of Firm X if the firm where not to do the expansion?
a)85
b)95
c)105
d)115
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: d) 115
Calculation:
2015 2016 2017 2018 2019 Total Interest Tax Shield 28.00 28.00 28.00 28.00 28.00 140.00 PV factor @ 7% 0.934579 0.873439 0.816298 0.762895 0.712986 Present value of Interest Tax Shield 26.17 24.46 22.86 21.36 19.96 114.81Related Questions
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