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CFA Level 1
Equity Investments

Intrinsic Value Calculation via FCF Model

Hard Equity Valuation Techniques Free Cash Flow Models

ABC Corporation is evaluating its long-term investment strategy and has decided to implement a Free Cash Flow (FCF) model to assess its intrinsic value. The company anticipates the following Free Cash Flows for the next five years: Year 1: $200 million, Year 2: $250 million, Year 3: $300 million, Year 4: $350 million, and Year 5: $400 million. After Year 5, the company expects its Free Cash Flow to grow at a constant rate of 3%.

If the company's weighted average cost of capital (WACC) is 8%, what is the estimated intrinsic value of ABC Corporation today based on the Free Cash Flow method?

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