Answer to Question #13221 in Management for John

Question

Suppose Leonard, Nixon, & Shull Corporation’s projected free cash flow for next year is $100,000, and FCF is expected to grow at a constant rate of 6%. If the company’s weighted average cost of capital is 11%, what is the value of its operations?
a. $1,714,750
b. $1,805,000
c. $1,900,000
d. $2,000,000
e. $2,100,000

Answer 1

The answer is: d ($2,000.000)


Explanation:
The value of operations = $ 100,000/1.11 + ($100,000*(1,06)/(11%-6%))/1.11 = $2,000.000