Year 1 2 3 4 Free Cash Flow $12 million $18 million $22 million $26 million Conundrum Mining is expected to generate the above free cash flows over the next four years, after which they are expected to grow at a rate of 3% per year. If the weighted average cost of capital is 13% and Conundrum has cash of $80 million, debt of $60 million, and 30 million shares outstanding, what is Conundrums expected terminal enterprise value

$463.67 million

Explanation:

The computation of the expected terminal enterprise value is shown below:

Terminal Enterprise value is

= Free cash flow ×  (1 + growth rate)  ÷ (Weighted average cost of capital - growth rate)

= $26 million × (1.07) ÷ (0.13 - 0.07 )

= $27.82 million ÷ 0.06

= $463.67 million

We simply applied the above formula to determine the expected terminal value

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