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Question 19
Zhdanov Inc. forecasts that its free cash flow in the coming year,
i.e., at t = 1, will be -$10 million, but its FCF at t = 2 will be $20
million. After Year 2, FCF is expected to grow at a constant rate of 4%
forever. If the weighted average cost of capital is 14%, what is the
firm’s value of operations, in millions?
Question 20
Leak Inc. forecasts the free cash flows (in millions) shown
below. If the weighted average cost of capital is 11% and FCF is
expected to grow at a rate of 5% after Year 2, what is the Year 0 value
of operations, in millions? Assume that