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Unformatted text preview: t of the free cash flow in year t+1 as well as a long-run growth rate (g): PVt FCFt 1 WACC  g Please click the advert what‘s missing in this equation? You could be one of our future talents maeRsK inteRnationaL teChnoLogY & sCienCe PRogRamme Are you about to graduate as an engineer or geoscientist? Or have you already graduated? If so, there may be an exciting future for you with A.P. Moller - Maersk. w ww.maersk.com/mitas Download free ebooks at bookboon.com 46 Corporate Finance Capital budgeting 2. Apply multiples of earnings, which assumes that the value of the firm can be estimated as a multiple on earnings before interest, taxes (EBIT) or earnings before interest, taxes, depreciation, and amortization (EBITDA): PVt EBIT Multiple ˜ EBIT PVt EBITDA Multiple ˜ EBITDA Example: - If other firms within the industry trade at 6 times EBIT and the firm's EBIT is forecasted to be €10 million, the terminal value at time t is equal to 6·10 = €60 million. Capital budgeting in practice Firms...
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