ABC Solutions is a rapidly growing company in the technology sector, aiming to expand its market share globally. The company forecasts the following Free Cash Flows (FCF) for the next five years: Year 1: $8 million Year 2: $10 million Year 3: $12 million Year 4: $15 million Year 5: $18 million After year 5, ABC Solutions expects a stable growth rate of 4% into perpetuity. The firm is analyzing its Weighted Average Cost of Capital (WACC), which is estimated at 10%. What is the intrinsic equity value of ABC Solutions using the Free Cash Flow to the Firm (FCFF) approach?

Exam

CFA Level 2

Section

Difficulty

Equity Investments

Free Cash Flow Valuation of ABC Solutions

Very Hard Equity Valuation Applications Free Cash Flow Valuation

ABC Solutions is a rapidly growing company in the technology sector, aiming to expand its market share globally. The company forecasts the following Free Cash Flows (FCF) for the next five years:

Year 1: $8 million
Year 2: $10 million
Year 3: $12 million
Year 4: $15 million
Year 5: $18 million

After year 5, ABC Solutions expects a stable growth rate of 4% into perpetuity. The firm is analyzing its Weighted Average Cost of Capital (WACC), which is estimated at 10%. What is the intrinsic equity value of ABC Solutions using the Free Cash Flow to the Firm (FCFF) approach?

$163.4 million

$182.4 million

$200.0 million

Hint

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