Calculating Present Value of Free Cash Flows

In the analysis of equity valuation, Free Cash Flow (FCF) is a crucial metric that represents the cash generated by a company after accounting for cash outflows related to capital expenditures. This cash can be used for expansion, dividends, or debt reduction. When using FCF for valuation, analysts typically project future cash flows and discount them back to their present value using an appropriate discount rate.

Consider a hypothetical company, Tech Innovations Inc., which anticipates free cash flows of $1 million in Year 1, $1.2 million in Year 2, and $1.5 million in Year 3. After Year 3, the firm expects to grow its cash flows at a constant rate of 5% indefinitely. If the appropriate discount rate is 10%, what is the present value of the projected free cash flows for the first three years?