Question #13221

Suppose Leonard, Nixon, & Shull Corporation’s projected free cash flow for next year is $100,000, and FCF is expected to grow at a constant rate of 6%. If the company’s weighted average cost of capital is 11%, what is the value of its operations?

a. $1,714,750

b. $1,805,000

c. $1,900,000

d. $2,000,000

e. $2,100,000

a. $1,714,750

b. $1,805,000

c. $1,900,000

d. $2,000,000

e. $2,100,000

Expert's answer

The answer is: d ($2,000.000)

Explanation:

The value of operations = $ 100,000/1.11 + ($100,000*(1,06)/(11%-6%))/1.11 = $2,000.000

Explanation:

The value of operations = $ 100,000/1.11 + ($100,000*(1,06)/(11%-6%))/1.11 = $2,000.000

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