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CFA Level 2
Equity Investments

Present Value of Free Cash Flows and Terminal Value

Easy Equity Valuation Applications Free Cash Flow Valuation

XYZ Corp. is a well-established company known for its consistent revenue growth. Analysts at XYZ Corp. are projecting that the company will generate the following free cash flows for the next five years:

Year 1: $5 million

Year 2: $6 million

Year 3: $8 million

Year 4: $10 million

Year 5: $12 million

After Year 5, analysts expect the free cash flow to grow at a stable rate of 3% indefinitely. If the appropriate discount rate is 10%, what is the present value of the cash flows in Year 1 through Year 5 and the present value of the terminal value at Year 5?

Hint

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