FIN 534 RANK Imagine Your Future /fin534rank.com FIN 534 RANK Imagine Your Future /fin534rank.com - Page 164
Suppose Yon Sun Corporation’s free cash flow during the just-
ended year (t = 0) was $100 million, and FCF is expected to grow at a
constant rate of 5% in the future. If the weighted average cost of capital
is 15%, what is the firm’s value of operations, in millions?
Based on the corporate valuation model, Bernile Inc.’s value of
operations is $750 million. Its balance sheet shows $50 million of short-
term investments that are unrelated to operations, $100 million of
accounts payable, $100 million of notes payable, $200 million of long-
term debt, $40 million of common stock (par plus paid-in-capital), and
$160 million of retained earnings. What is the best estimate for the
firm’s value of equity, in millions?