Heavy Metal Corporation is expected to generate the following free cash flows over the next five years:

Year 1 2 3 4 5
FCF ($ million) 27,000 78,000 71,000 89,000 53,000

After then, the free cash flows are expected to grow at the industry average of 10% per year. Using the discounted free cash flow model and a weighted average cost of capital of 11%:

Estimate the enterprise value of Heavy Metal.

 

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SOLUTION:

The process for solving this problem is very similar to the supernormal stock valuation process.

This gives you the enterprise value of the company based on its free cash flows.