Tutter Corporation is being valued using discounted cash flow methodology with terminal value calculated as a growing perpetuity.Not including the terminal value,the present value of projected free cash flows for years 1 through 5 is $200 million (total).In year 5,projections show free cash flow of $60 million.What is the estimated fair market value of Tutter Corporation? Assume a WACC of 10% and a growth rate of 2%.

Question

Quizplus · Accepted Answer

FMV = PV{FCF,1-5} + PV{Terminal value}. Terminal value = FCF(1 + g)/(K_W - g)= $61.2/0.08 = $765 million. PV of Terminal value = $765 million/1.11⁵ = $475 million. FMV = 200 million + 475 million = $675 million.

Tutter Corporation Is Being Valued Using Discounted Cash Flow Methodology