Using the stable growth free cash flow to the firm (FCFF) model, what is the value of Quality Builders under the assumptions contained in the table below?
The stable growth FCFF model assumes that FCFF grows at a constant rate forever. FCFF in Year 0 is equal to EBIT(1 − tax rate) + Depreciation − Capital Spending − Working Capital Additions = 500(1 − 0.4) + 200 − 300 − 30 = 170. The Firm Value = FCFF1 / (r − gn) = 170(1.05) / (0.11 − 0.05) = $2,975.
