Consider the following forecasts for 2015-2019 of the Future Cash Flows, EBITDA
ID: 2648001 • 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
If the Value of Firm X (at December 2014) of doing the expansion is estimated to be $97,706, should Firm X do the expansion (according to the NPV of the expansion)?
a)Yes
b)No
c)Maybe
d)None of the Above
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
As the EBITDA multiple 1.95 is < 5 , expansion cannot be considered.
Year FCFF Factor @ 10% FV of FCFF Int. Tax shield Factor @ 7% FV of FCFF Total FV 2015 3638 0.909090909 3307.2727 28 0.93457944 26.168224 3333.441 2016 6862 0.826446281 5671.0744 28 0.87343873 24.456284 5695.531 2017 7116 0.751314801 5346.3561 28 0.81629788 22.856341 5369.212 2018 7373 0.683013455 5035.8582 28 0.76289521 21.361066 5057.219 2019 7629 0.620921323 4737.0088 28 0.71298618 19.963613 4756.972 24097.57 114.80553 24212.38Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.