A company’s most recent free cash flow was $270. The companyexpects to have a FCF in 1 year of $300, which is expected to growat a constant rate of 3% forever. If the WACC is 11%, what is thevalue of operations? ($3,750)

A company’s most recent free cash flow was $270. The companyexpects to have a FCF in 1 year of $300, which is expected to growat a constant rate of 3% forever. If the WACC is 11%, what is thevalue of operations? ($3,750)

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 27P

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

A company’s most recent free cash flow was $270. The company
expects to have a FCF in 1 year of $300, which is expected to grow
at a constant rate of 3% forever. If the WACC is 11%, what is the
value of operations? ($3,750)

Definition Definition Cash that is left over after a company has paid for its operating and capital expenses. Unlike net income or earnings, free cash flow excludes non-cash expenses of the income statement and includes the expenditures on equipment and assets. Free cash flow also helps potential shareholders to evaluate how quickly the company can pay interest and dividends.

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