MC Corporation’s current free cash flow is $400,000 and is expected to grow at a constant rate of 5%. The weighted average cost of capital is WACC = 12%. Calculate EMC’s estimated value of operations

Financial Management: Theory & Practice
16th Edition
ISBN:9781337909730
Author:Brigham
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Chapter7: Corporate Valuation And Stock Valuation
Section: Chapter Questions
Problem 11P: Brook Corporation’s free cash flow for the current year (FCF0) was $3.00 million. Its investors...
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MC Corporation’s current free cash flow is $400,000 and is expected to grow at a constant rate of 5%. The weighted average cost of capital is WACC = 12%. Calculate EMC’s estimated value of operations

Expert Solution
Step 1

Data given:

Free cash flow (FCF) = $400,000

 Expected  growth at a constant rate (g)= 5%

WACC= 12%

 

Required:: Estimated value of operations

 

Formula to be used::

Value of operation=FCF *(1+g)WACC - g.

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