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Author Question: Bronson Building Products Inc estimates that FCFF in the coming year will be 1,600,000, year two ... (Read 53 times)

sarasara

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on: Jul 11, 2018
Bronson Building Products Inc estimates that FCFF in the coming year will be 1,600,000, year two will be 15 greater than year one, and year three will be 10 greater than year two. Bronson has a cost of capital of 12.
 
  Estimate the firm's terminal value FCFF as of year three if cash flows are estimated to continue to increase at a rate of 5 indefinitely. What is the overall estimated (present) value of the firm?

Question 2

If Cathy deposits 12,000 into a bank account that pays 6 interest compounded quarterly, what
  will the account balance be in seven years?
 
  A) 19,112 B) 19,344 C) 18,207 D) 18,001


akemokai

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Reply #1 on: Jul 11, 2018
Answer to Question 1

FCFF1 = 1,600,000 PV FCFF1 = 1,428,571
FCFF2 = 1,600,000  (1.15 ) = 1,840,000 PV FCFF2 = 1,466,837
FCFF3 = 1,840,000  (1.10 ) = 2,024,000 PV FCFF3 = 1,440,643
Terminal Value at year 3 = 2,024,000  (1.05 )/(.12 - .05 ) = 30,360,000 PV of TM = 21,609,648
Present value of the firm = 25,945,700

Answer to Question 2

C


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