Using a corportate valuation model answer the following: Show work
ABC had free cash flow (FCF) of $24,000,000 in the most recent year. Analysts for the firm expect FCF to grow 25% next year, 15% in year 2, 12% in year 3, and at constant rate of 10% from year 4 onward. ABC has $50 million in short-term securities, $200 million in long-term securities, $1.2 billion in long-term debt, $300 million in short-term debt, $100 million in preferred stock (1 million shares), 25 million shares of common stock, and a cost of capital (wacc) of 11%. FCF of year 1 is expected to be 30,000,000, year 2 is expected to be 34,500,000, year 3 is expected to be 38,640,000, year 4 is expected to be 42,504,000.
a) Find the terminal value
b) What is the value of operations
c) What stage of the industry lifecycle would this company be in and why?
In the stable growth period, ABC is expected to grow at 10% per year. Assume that in stable growth ABC will need to reinvest 83 1/3% of its after-tax operating profit or NOPAT.
d) Compute the ROIC ABC expects in its stable growth period. What does this tell you about ABC competitive advantage in the stable growth period?