Using discounted cash flow what is the value of operations

Question

1. Exhibit presents free cash flow and economic profit forecasts for ApparelCo, a $250 million company that produces men's clothing.

ApparelCo is expected to grow revenues, operating profits, and free cash flow at 6 percent per year indefinitely. The company earns a return on new capital of 15 percent The company's cost of capital is 10 percent. Using the key value driver formula, what is the continuing value as of year 5?

Using discounted cash flow, what is the value of operations for ApparelCo? What percentage of ApparelCo's total value is attributable to the continuing value?

2. Since growth is stable for ApparelCo, you decide to start the continuing value with year 3 cash flows (i.e., cash flows in year 3 and beyond arc C011811 10 13 ApparelCo: Free Cash Flow and Economic Profit Forecasts

	Today	Year 1	Year 2	Year 3	Year 4	Year 5
							Contiauing
							Value
Resource	260	285	290.9	297.8	315.8	334.5	354.6
Operating Cost	225	238.5	252.8	268	284.1	301.1	319.2
Operating profits	25	28.5	28.1	29.8	31.6	33.5	36.5
Operating tzocs	6.3	6.6	7	7.4	7.9	8.4	8.9
NOPLAT	18.8	19.9	21.1	22.3	23.7	25.1	26.6
Not inverstement		8	8.4	8.8	9.6	10
Free cash flow		11.9	12.6	13.4	14.2	15.1
Economics profit
NOPLAT		19.9	211	223	237	261	36
Invested capital		132.5	140.5	148.9	157.8	167.8	177.3
x Cost of capital(percent)		10	10	10	10	10	10
Capital charge		13.3	14	14.9	15.8	16.7	17.7
Economics profit		66	70	74	78	84	89

part of the continuing value). Using the key value driver formula (and data provided in Question 1), what is the continuing value as of year 2? Using discounted cash flow, what is the value of operations for ApparelCo? What percentage of ApparelCo's total value is attributable to the continuing value? How do these percentages compare to Question 1?