Suppose your company's WACC=12% and you know that the free cash flow of your company next year is going to be FCF-$1.2 and then FCF is expected to grow at 8%. Then the PCF is and the company's horizon value in one year is This means that the firm's value today is

Suppose your company's WACC=12% and you know that the free cash flow of your company next year is going to be FCF-$1.2 and then FCF is expected to grow at 8%. Then the PCF is and the company's horizon value in one year is This means that the firm's value today is

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter21: Dynamic Capital Structures And Corporate Valuation

Section: Chapter Questions

Problem 9P

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Concept explainers

Loanable Funds Theory

The loanable funds theory is a neoclassical theory that determines the interest rate where the demand for loanable investments and supply of loanable funds intersect. To determine the interest rate, this theory employs linear regression and a demand curve. At the equilibrium point, demand for borrowings and demand for the issuance of borrowing funds are inextricably linked. This point of equilibrium should equalize demand and the supply of money available for borrowing.

Question

D3)

Suppose your company's WACC=12% and you know that the free cash flow of your company next year is going to be FCF-$1.2 and then
FCF is expected to grow at 8%. Then the FCF, is
and
the company's horizon value in one year is
This means that the
firm's value today is

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