Income approaches: Maryland Electronics, an electronics manufacturer, is expected to grow rapidly in the next five years and then have a stable growth rate for the foreseeable future. The firm expects free cash flows of $262.5 million next year. These cash flows are expected to grow at a 30 percent rate over the following four years, and thereafter its cash flows will grow at a steady rate of 6 percent per annum. The company has nonoperating assets (NOA) of $31 million in the form of cash.. If the appropriate WACC is 9 percent, what is the enterprise value of this business? Round to the nearest million.

Question

Quizplus · Accepted Answer

The enterprise value is calculated by discounting the expected free cash flows at the WACC and adding the value of nonoperating assets. The cash flows grow at 30% for four years and then at 6% perpetually. The present value of these cash flows, when calculated, results in an enterprise value closest to $19,014 million.

Income Approaches: Maryland Electronics, an Electronics Manufacturer, Is Expected to Grow