Electronix Inc. manufactures electronic products. The company’s weighted average cost of capital is 8 percent. The company forecasted the following free cash flows for the next 20 years: Cash Flows Table Year Free Cash Flows 1 $15,000,000 2 $16,200,000 3 $21,000,000 4 $23,000,000 5 $27,000,000 6-10 $25,000,000 per year 11-20 $21,000,000 per year Prepare a valuation report for Electronix Inc. using the discounted cash flow approach. Identify the accounts taken into consideration in the discounted cash flow method. Compare the difference between future income method and the discounted future cash flow method.

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter4: Financial Planning And Forecasting
Section: Chapter Questions
Problem 9P
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Electronix Inc. manufactures electronic products. The company’s weighted average cost of capital is 8 percent. The company forecasted the following free cash flows for the next 20 years:

Cash Flows Table

Year Free Cash Flows
1 $15,000,000
2 $16,200,000
3 $21,000,000
4 $23,000,000
5 $27,000,000
6-10 $25,000,000 per year
11-20 $21,000,000 per year
  • Prepare a valuation report for Electronix Inc. using the discounted cash flow approach.
  • Identify the accounts taken into consideration in the discounted cash flow method.
  • Compare the difference between future income method and the discounted future cash flow method.
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