Question

Mooradian Corporation’s free cash flow during the just-ended year (t = 0) was $150 million, and its FCF is expected to grow at a constant rate of 5.0% in the future. If the weighted average cost of capital is 12.5%, what is the firm’s total corporate value, in millions? $1,895 $1,995 $2,100 $2,205 $2,315

Answer 1

$2100 million is the correct

Step-by-step explanation:

Given data :

Cash flow given = 150 million, growth rate = 5% constant, weighted average cost of capital = 12.5%

The calculation of the firm’s total corporate value is as follows by using the formula:

`Firm Total Corporate Value $=$ the Free cash flow (T1)/ $\mathrm{Ke}-\mathrm{G}$`

`=150(1+0.05) / 12.5 \%-5 \%`

= 2100 million

Where: Ke = cost of capital

Thus, from the given options, $2100 million is the correct answer