61 844
Assignments Done
98%
Successfully Done
In May 2018

Answer to Question #13225 in Other Management for John

Question #13225
Vasudevan Inc. forecasts the free cash flows (in millions) shown below. If the weighted average cost of capital is 13% and the free cash flows are expected to continue growing at the same rate after Year 3 as from Year 2 to Year 3, what is the Year 0 value of operations, in millions?
Year: 1 2 3
Free cash flow: -$20 $42 $45
a. $586
b. $617
c. $648
d. $680
e. $714
Expert's answer
The answer is: b ($617)


Explanation:
The growth rate g=$45/$42-1.0=7,14%
Terminal value at Year 2 = free cash flow/(WACC-g)=45/(0.13 - 0,0714)=$768

Value of operations = -$20(1.13) ($42+$768)/(1.13)2 = $ 617

Need a fast expert's response?

Submit order

and get a quick answer at the best price

for any assignment or question with DETAILED EXPLANATIONS!

Comments

No comments. Be first!

Leave a comment

Ask Your question

Submit
Privacy policy Terms and Conditions