The following table presents forecasted financial and other information for Scot

Question

The following table presents forecasted financial and other information for Scott's Miracle-Gro Co.:

What is an appropriate estimate of Scott's terminal value as of the end of 2014, using a warranted price-to-earnings multiple as your estimate?

$4,207.5 million

$5,781.8 million

$1,526.3 million

$3,833.0 million

$4,282.3 million

$4,207.5 million

$5,781.8 million

$1,526.3 million

$3,833.0 million

$4,282.3 million

Projected EBIT Earning after tax Free cash flow 2012 $317 197 135 2013 $339 210 144 2014 $382 229 157 Scott's WACC Expected growth rate in FCFs after 2014 Warranted MV firm/F CF in 2014 Warranted P/E in 2014 8.2% 4,090 19.4 18.7

Explanation / Answer

Warranted P/E ratio in 2014 is 18.7 (given), which means Market Capitalization/ Total Earnings = 18.7

So Earnings after Tax in 2014 is $229

So, Terminal Value of 2014 using the warranted P/E multiple would be = 18.7*$229 = $4282.30 million.

Hence the terminal Value of Scott as of the end of 2014 using the warranted P/E multiple would be $4282.30 million.

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