Estimate the Terminal Value Assignment

Lizo is a public company with the following characteristics (in the most recent year): – At the start of the year, the firm had book value of equity of $400 million, debt outstanding (book value as well as market value) of $200 million, and cash balance of $100 million. These numbers did not change during the most recent year.

– The cost of capital for the firm is 6% next year, 8% the year after and 9% thereafter (in perpetuity).

– Shares outstanding: 200 million

– After-tax operating income: $100 million

– Revenues: $800 million

b) At the end of year 3, you expect Lizo to be in stable growth, growing 5% a year in perpetuity, while maintaining its current return on invested capital. Estimate the terminal value at the end of year 3. Get Finance homework help today