Kendra Enterprises has never paid a dividend. Free cash flow is projected to be $80,000 and $100.000 for the next 2 years, respectively; after the second year, FCF is expected to grow at a constant rate of 8%. The company’s weighted average cost of capital is 12%.
What is the terminal, or horizon, value of operation? (Hint: find the value of all free cash flows beyond year 2 discounted back to year 2.)
Calculate the value of Kendra’s operations.