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Question 21
Suppose Leonard, Nixon, & Shull Corporation’s projected free
cash flow for next year is $100,000, and FCF is expected to grow at a
constant rate of 6%. If the company’s weighted average cost of capital
is 11%, what is the value of its operations?
Answer
Question 22
A company forecasts the free cash flows (in millions) shown
below. The weighted average cost of capital is 13%, and the FCFs are
expected to continue growing at a 5% rate after Year 3. Assuming that
the ROIC is expected to remain constant in Year 3 and beyond, what is
the Year 0 value of operations, in millions?
Year:
1
Free cash flow:
$40
2
-$15
3
$10