Free Cash Flow
2014- 1,522
2015- 1,834
2016-2,056
consider a cost of capital of 9.6% and that it is expected that the cfs of the company will grow at a rate of 6% long term.
To calculate the present value of the free cash flows and the terminal value, we need to use the discounted cash flow (DCF) formula.
First, let's determine the terminal value (TV). The terminal value represents the value of the cash flow beyond the explicit forecast period (in this case, after 2016) and is calculated using the perpetuity formula:
TV = FCFT * (1 + Growth Rate) / (Cost of Capital - Growth Rate)
where FCFT is the free cash flow in the last year of the forecast period, Growth Rate is the expected long-term growth rate of the cash flows, and Cost of Capital is the required rate of return or discount rate.
In this case, FCFT = 2,056, Growth Rate = 6%, and Cost of Capital = 9.6%.
TV = 2,056 * (1 + 6%) / (9.6% - 6%)
TV = 2,056 * 1.06 / 0.036
TV = 61,509.80
Now, let's calculate the present value (PV) of the free cash flows. We will use the following DCF formula:
PV = FCFT / (1 + Cost of Capital)^n
where FCFT is the free cash flow in a specific year, Cost of Capital is the required rate of return or discount rate, and n is the number of years in the future.
For 2014:
PV2014 = 1,522 / (1 + 9.6%)^1
PV2014 = 1,522 / (1 + 0.096)
PV2014 = 1,522 / 1.096
PV2014 = 1,389.71
For 2015:
PV2015 = 1,834 / (1 + 9.6%)^2
PV2015 = 1,834 / (1 + 0.096)^2
PV2015 = 1,834 / 1.1964
PV2015 = 1,532.76
For 2016:
PV2016 = 2,056 / (1 + 9.6%)^3
PV2016 = 2,056 / (1 + 0.096)^3
PV2016 = 2,056 / 1.288
PV2016 = 1,594.00
Now, we sum up the present values of the free cash flows and the terminal value to find the total present value (TPV):
TPV = PV2014 + PV2015 + PV2016 + TV
TPV = 1,389.71 + 1,532.76 + 1,594.00 + 61,509.80
TPV = 65,026.27
Therefore, the total present value of the free cash flows and terminal value is $65,026.27.
Note: The values provided are assumed and used for illustrative purposes. Please verify the actual data before performing any financial analysis.