Ellis Manufacturing Inc has estimated FCFF for each of the next five y

Ellis Manufacturing Inc has estimated FCFF for each of the next five years and believes that subsequent cash flows will grow at a constant annual rate of 3% indefinitely.

If FCFF are $4,500,000 in year five, and the cost of capital is 9%, what is the value in year five of these terminal value cash flows?
A) $50,207,200
B) $75,000,000
C) $77,250,000
D) There is not enough information to answer this question.

ANSWER

C
Explanation: C) FV5 = CF6/(r – g) = $4,500,000(1.03 )/(.09 -.03 ) = $77,250,000.