This workout asks us to calculate the enterprise value We've been given quite a lot of information, so a lot of our time will be spent calculating the free cash flows So I start with my year counts and I know I've got years one to five being detailed cash flows We start with EBIT and that's our operating profit, I don't see any non-recurring items that need to be added back I then need to take tax off of that EBIT I figure of 54, to get to my NOPAT of 216 Fantastic! So we're part of the way there already, I now need to go looking for any other cash flows that have arisen So I look at my operating assets and they've gone from 31.2 up to 34 If they've gone up, if assets have gone up. They must have spent money, so that means a negative 2.8 cash That's a cash flow outwards Change in operating liabilities is the other way around If that's gone up (which it has), that means that I have not spent money. It means that I have actually held onto that cash So that's a positive cash flow 5.5 Change in my long term assets, again that's last year minus this year As that's gone up, that means that I must have spent money, 23.2 outflow That's got me to my free cash flow, so I add everything from NOPAT downwards and I get to a figure of 195.5 Let's copy those figures to the right and I should now have free cash flows for the first 5 years We now move on to our terminal value and I need some clues to help me out here I can see that we've got a long term growth rate and a WACC given to us This suggests to me that I need to use the growing perpetuity formula So my growing perpetuity formula says, start with your free cash flow and then multiply that by one plus the long term growth rate All divided by your WACC minus the long term growth rate Getting me a terminal value of 2,661.9 We now need to start thinking about discounting these future cash flows back to today and I need a discount factor to do that The discount factor formula is one divided by one plus the WACC (I'm going to lock that by putting dollar signs around it) To the power of the year that you're in and we're in year 1 So the discount factor, when I show three decimal places is 0.926 I.e. my free cash flow of 195.5 was in a year's time I only want 92.6% of that now, which gets me a present value of 181.1 If I copy those two to the right, I end up with the present value of three cash flows in five years If I sum up those three cash flow present values I get to a sum of present value free cash flows of 591.5 The one thing that I haven't present valued so far is that terminal value So that's currently sitting in year 5, I'm going to multiply it by the year 5 discount factor I now sum up those two items above, getting me an eventual answer of enterprise value 2,403.1