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Kamila [148]
4 years ago
13

Mooradian Corporation's free cash flow during the just-ended year (t = 0) was $150 million, and its FCF is expected to grow at a

constant rate of 5.0% in the future. If the weighted average cost of capital is 12.5%, what is the firm's value of operations, in millions?
Business
1 answer:
Savatey [412]4 years ago
8 0

Answer:

Firm's value of operations = $2,100 million

Explanation:

Using the growth model we have

Free cash flow at t=1 = $150 million + 5% expected growth = $157.5 million

Weighted average cost of capital = 12.5%

Therefore with growth rate = 5%

We have present value of firm's operations = \frac{157.5 million}{0.125 - 0.05} = \frac{157.5 million}{0.075} = $2,100 million

Firm's value of operations = $2,100 million

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