BAB, Inc. (BABB)
|Growth in perpetuity method:|
|Long-term growth rate|
|Free cash flow (t + 1)||0.72|
|Present Value of Terminal Value||25.19|
Now that we’ve estimated the free cash flow generated over the five-year forecast period, we need to estimate the value of BAB, Inc.’s cash flows after that period (if we don’t include this, we would have to assume that BAB, Inc. stopped operating at the end of the five-year forecast period). To do so, we’ll determine the company’s terminal value.