EMC & Brooks Enterprise - Value of Operation of Constant Growth

Problem 15-2 (Value of operation of constant growth firm)

EMC Corporation has never paid a dividend. Its current free cash flow is $400,000 and is expected to grow at a constant rate of 5%. The weighted average cost of capital is WACC =12%. Calculate EMC's value of operations.

Problem 15-6 (Value of operations)

Brooks Enterprise has never paid a dividend. Free cash flow is projected to be $80,l000 and $100,000 for the next 2 years, respectively, and after the second year it is expected to grow at a constant rate of 8%. The company's weighted average cost of capital is WACC = 12%.

A- What is the terminal, or horizontal, value of operations? (Hint: Find the value of all free cash flows beyond Year 2 discounted back to Year 2.)
B- Calculate the value of Brook's operations.

Solution Summary

This solution is comprised of a detailed explanation to calculate the value of operation and beta of the firms.