Find the Terminal Value, given the 5th year cash flow of $500,000,000.00, with a long term growth rate of 3% and discount rate of 9%. What is the Terminal Value at the end of year 5? What is the Present Value of the Terminal Value?
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ABC Software is considering starting a new division making phone apps. It has prepared the following five-year forecast of free cash flows for this division. Year 1: 69,000 Year 2: 20,000 Year 3: 24,000 Year 4: 83,000 Year 5: 215,000 Assume that the cash flows after year 5 will grow at 1% per year, forever. The discount rate for this division is 8%. What is the terminal value as of year 5 (i.e., the value of all future cash flows starting in year 6)? NPV = (69,000 x pvf@8%, year 1) + (20,000 x pvf@8%, year 2) + (24,000 x pvf@8%, year 3) + (83,000 x pvf@8%, year 4) + (215,000 x pvf@8%, year 5) + (2,000,000 x pvf@8%, year 5) = (69,000 x 0.9259259) + (20,000 x 0.8573388) + (24,000 x 0.79383224) + (83,000 x 0.75603071) + (215,000 x 0.70002843) + (2,000,000 x 0.70002843) = 1,668,587
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