Question

Suppose Boyson Corporation's projected free cash flow for next year is FCF1 = $100,000, and FCF is expected to grow at a constant rate of 6.5%. If the company's weighted average cost of capital is 11.5%, what is the firm's total corporate value?

Answer 1

Answer:

Value of firm today = $2,000,000

Explanation:

Provided details are,

Future Cash Flow = $100,000

Expected growth rate = 6.5%

Weighted average cost of capital = 11.5%

Firm's total corporate value = $\frac{Future\ Cash\ Flow}{Cost\ of\ capital - growth\ rate}$

= $\frac{100,000}{0.115 - 0.065}$

= $\frac{100,000}{0.05}$

= $2,000,000

Thus, value of firm today with the details provided = $2,000,000