Consider the following forecasts for 2015-2019 of the Future Cash Flows, EBITDA
ID: 2648000 • 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
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
d 115 as shown below
Statement showing calculation of Present Value Particulars Time PVF@7% Amount PV Cash Inflows 1.00 0.9346 28.00 26.17 Cash Inflows 2.00 0.8734 28.00 24.46 Cash Inflows 3.00 0.8163 28.00 22.86 Cash Inflows 4.00 0.7629 28.00 21.36 Cash Inflows 5.00 0.7130 28.00 19.96 PV of Cash Inflows 114.81 Time PVF Calculations 1.00 0.9346 1/1.07 2.00 0.8734 .9346/1.07 3.00 0.8163 .8734/1.07 4.00 0.7629 .8163/1.07 5.00 0.7130 .7629/1.07Related Questions
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