Suppose a company's most recent free cash flow (i.e., yesterday's free cash flow) was $100 million and is expected to grow at a constant rate of 5 percent. If the company's weighted average cost of capital is 15 percent, what is the current value of operations?
a. $ 913 million
b. $1,000 million
c. $1,050 million
d. $1,500 million
e. $2,000 million
14. A company forecasts free cash flow of $50 million in five years. It expects the free cash flow to grow at a constant rate of 6 percent thereafter. If the weighted average cost of capital is 12 percent, what is the horizon value, to the nearest million?
a. $53 million
b. $501 million
c. $600 million
d. $833 million
e. $883 million
1. The value today is found by the following formula
Cash Flow * (1+growth Rate)/ (Discount ...
The solution explains how to calculate the current value of operations and the horizon value given the free cash flows