Business valuation when in abnormal growth rate
The free cash flow of a firm is projected to grow at compound annual growth rate of 35% for next 5 years, then 5% annual growth rate.
Current year cash flow 400,000 and cost of capital for high growth time is 18% but after 5 years 12%.
what is value of firm?
Just discount back the first five years accounting for TVM at 18% and use the perpetuity growth model for the period following and discount that value from year five at the 18% rate
I think ~$14,810,000 assuming you discount the cash flows for the first five years at year end for the PV factor. ~$16,087,000 if you discount the cash flows mid year in each of the projected years.
Thanks all! I reached to 14,809,525 closer to option C.
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