Answer:
Value of Victoria Enterprises= $21,498,285.71
Explanation:
<em>Free cash flow represents the amount that is left to all the providers of capital after the payment of all all operating expenses, working capital and investment in fixed asset expenditures.
</em>
It is computed as cash flow made from operation less capital expenditures
For Victoria Enterprises
The Free cash flow
= EBIT(1-T) + depreciation- increase in capital expenditure - increase in working capital
= 2.5 × (1-0.4) + 0.295 - 0.295 - 0.053
= 2,500,000 × (1-0.4) + 295,000 -295,000- 53,000
FCFF= $1,447,000
Value of a firm = FCFF (1+g)/(WACC-g)
g- growth rate
- 4%, WACC- 11%, FCFF-1,447,000
Value of Victoria = 1,447,000 × (1+0.04)/(0.11- 0.04)
= 21,498,285.71
Value of Victoria= $21,498,285.71
