Question

Warehousing is expected to generate a free cash flow of $$6,615.00 million this year and the FCF is expected to grow at a rate of 23.80% over the following two years. After the third year, however, the FCF is expected to grow at a constant rate of 3.54% per year, which will last forever. If 123 Warehousing corp's weighted average cost of capital is 310.62%, what is the current total firm value of 123 Warehousing corp?

a) $87,286.94 million

b) $94463.24 million

c) $72739.12 million

d) 11,307.87

Answer 1

To calculate the current total firm value of 123 Warehousing Corp, we need to determine the present value of its future free cash flows (FCF). We can use the formula for the present value of a growing perpetuity to calculate the present value of the FCF for the next two years and beyond the third year. Summing up these present values will give us the current total firm value.

Step-by-step explanation:

To calculate the current total firm value of 123 Warehousing Corp, we need to determine the present value of its future free cash flows (FCF). Since the FCF is expected to grow at a rate of 23.80% for the next two years and then at a constant rate of 3.54% thereafter, we can use the formula for the present value of a growing perpetuity. First, we calculate the present value of the FCF for the next two years:

PV = FCF1 / (1 + r) + FCF2 / (1 + r)^2

Where FCF1 is the FCF for year 1, FCF2 is the FCF for year 2, and r is the weighted average cost of capital (WACC).

Then, we calculate the present value of the FCF beyond the third year:

PV = FCF3 / (r - g)

Where FCF3 is the FCF for year 3, r is the WACC, and g is the constant growth rate.

Finally, we sum up the present values of the FCF for the next two years and the present value of the FCF beyond the third year to get the current total firm value of 123 Warehousing Corp.