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    Current Value of Operations

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    A company forecasts free cash flow in one year to be -$10 million and free cash flow in two years to be $20 million. After the second year, free cash flow will grow at a constant rate of 4 percent per year forever. If the overall cost of capital is 14 percent, what is the current value of operations, to the nearest million?

    a. $150 million
    b. $167 million
    c. $200 million
    d. $208 million
    e. $228 million

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    Solution Preview

    PV of growing perpetuity = C/(r-g) where C is the cash flow, r is the cost of capital and g is the growth rate

    PV ...