Question

Young & Liu Inc.'s free cash flow during the just-ended year (t = 0) was $100 million, and FCF is expected to grow at a constant rate of 5% in the future. If the weighted average cost of capital is 15%, what is the firm's value of operations, in millions?a. $948b. $998c. $1,050d. $1,103e. $1,158

Answer 1

The correct answer is C.

Step-by-step explanation:

Giving the following information:

Young & Liu Inc.'s free cash flow during the just-ended year (t = 0) was $100 million, and FCF is expected to grow at a constant rate of 5% in the future. If the weighted average cost of capital is 15%.

We need to find the present value of futures cash flows using the following formula.

PV= FCF year 1/(cost of capital - growth rate)

PV= (100*1.05) / (0.15 - 0.05)= $1,050