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    Value of operations

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    A company forecasts the following free cash flows (shown in millions of dollars). If the weighted average cost of capital is 13 percent and the free cash flows are expected to continue growing at the same rate after Year 3, what is the Year 0 value of operations, to the nearest million? Year: 1 2 3 Free cash flow: -$20 $40 $42

    a. $382 million
    b. $425 million
    c. $460 million
    d. $475 million
    e. $488 million

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    Solution Preview

    The value of operations is the present value of the free cash flows. We first find the growth rate, since the cash flows beyond year 3 will grow at the same rate as year ...

    Solution Summary

    The solution explains how to calculate the value of operations.