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a) Compute the free cash flows for the next 5 years. b) Compute the terminal value at the end of year 5. c) What is the company’s enterprise value?

a) Compute the free cash flows for the next 5 years. b) Compute the terminal value at the end of year 5. c) What is the company’s enterprise value?

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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You have been studying Lucas Corp.’s financial statements. This year, the company has an EBIT of
$3.15mil, Depreciation of $295,000, an increase in net working capital of $125,000, and a capital
spending of $535,000. You expect that over the next 5 years, EBIT will grow at 15% per year,
depreciation and capital spending will grow at 20% per year, and NWC will grow at 10% per year. After
year 5, you expect the company’s free cash flow will grow at 3.5% indefinitely. The company has a 21%
corporate tax rate and a WACC of 8.9%.
a) Compute the free cash flows for the next 5 years.
b) Compute the terminal value at the end of year 5.
c) What is the company’s enterprise value? 

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