Question

The projected cash flow for the next year for Minesuah Inc. 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. $1,714,750b. $1,805,000c. $1,900,000d. $2,000,000e. $2,100,000

Answer 1

d. $2,000,000

Step-by-step explanation:

The computation of the value of its operation is shown below:

= Projected cash flow for the next year ÷ (Weighted average cost of capital - Growth Rate)

= $100,000 ÷ (11% - 6%)

= $100,000 ÷ 5%

= $2,000,000

We simply take the next year projected cash flow and divide it by taking the difference between the weighted average cost of capital and the growth rate