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    Zhdanov Inc. Cash Flow Forecast: What is WACC and Firm's Value?

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    5. Zhdanov Inc. forecasts that its free cash flow in the coming year, i.e., at t = 1, will be -$10 million, but its FCF at t = 2 will be $20 million. After Year 2, FCF is expected to grow at a constant rate of 4% forever. If the weighted average cost of capital is 14%, what is the firm's value of operations, in millions?

    a. $158
    b. $167
    c. $175
    d. $184
    e. $193

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    Solution Preview

    The value of operations is the present value of all free cash flows

    we are given the cash flows for 2 years and then the cash flows grow at a constant rate. We use the ...

    Solution Summary

    The solution explains how to determine the firm's value of operations. Calculations and answers are provided as well.