Question

udd Corporation has a weighted average cost of capital of 10.25%, and its value of operations is $57.50 million. Free cash flow is expected to grow at a constant rate of 6.00% per year. What is the expected year-end free cash flow, FCF 1 in millions

Answer 1

$2.44 millions

Step-by-step explanation:

Given that

Value of operations = $ 57.50 million

Weighted average cost of capital = 10.25%

Growth rate = 6.00%

The computation of the expected year end free cash flow is shown below:

Value of operation = Free cash flow ÷ ( WACC - growth rate )

$57.50 million = Free cash flow ÷ 0.1025-0.06

$57.50 million = Free cash flow ÷ 0.425

So,

Free cash flow = $57.50 million × 0.0425

= $2.44 millions