Answer:
Value of Op. $8,635.04 (Millions)
Explanation:
The value of operatins will be the present value of the expected cash flow
we discount 2020 ad 2021 cash flow as lump sum using the WACC of 9%
[tex]\frac{FCF}{(1 + rate)^{time} } = PV[/tex]
[tex]\frac{200}{(1 + 0.09)^{1} } = PV[/tex]
[tex]\frac{500}{(1 + 0.09)^{2} } = PV[/tex]
Then, for the subsequent year we use the gordon model:
[tex]\frac{FCF_1}{return-growth} = Intrinsic \: Value[/tex]
[tex]\frac{500 x 1.04}{0.09 - 0.04} = Intrinsic \: Value[/tex]
As this is in the future we also have to discounted,
# Cashflow Discounted
1 200 183.49
2 500 420.84
3 520 8030.71
Value of Op. 8635.04
