Explore BrainMass

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

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

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.