Question

A company's free cash flow was just FCF0 = $1.50 million. The weighted average cost of capital is WACC = 10.1%, and the constant growth rate is g = 4.0%. What is the current value of operations?a. $23.11 millionb. $23.70 millionc. $24.31 milliond. $24.93 millione. $25.57 million

Answer 1

current value = $25.5738 Million

so correct option is e. $25.57 million

Step-by-step explanation:

given data

free cash flow FCF0 = $1.50 million

weighted average cost of capital WACC = 10.1 %

constant growth rate g = 4.0%

to find out

current value of operations

solution

we apply here formula for current value that is express as

current value =
`(FCFO(1+G))/(WACC-G)` ..................1

put here value we get

current value =
`(FCFO(1+G))/(WACC-G)`

current value =
`(1.50 (1 + 0.04))/((0.101 - 0.04))`

current value =
`(1.50*1.04)/(0.061)`

current value = $25.5738 Million

so correct option is e. $25.57 million