Answer to Question #19563 in Management for Patrick Lubang Yakobo

Question

A company forecasts the free cash flows (in millions) shown below. The weighte average cost of capital (WACC) is 13%, and the FCFs are expected to continue growing at 5% rate after year 3 and beyond. Assuming that the ROIC is expected to remain constant in year 3 and beyond. What is the year 0 value of operations. Year 1: FCF is -$15; Year 2: FCF is $10; and Yerar 3: FCF is $40.

Answers are A0 $315; B) $348; C) $367; D) $386; E) $331.

Best regards.