Question

EMC Corporation has never paid a dividend. Its current free cash flow of $490,000 is expected to grow at a constant rate of 4.4%. The weighted average cost of capital is WACC = 13%. Calculate EMC's estimated value of operations. Do not round intermediate calculations. Round your answer to the nearest dollar.

Answer 1

$5,697,674

Step-by-step explanation:

Dividend Valuation method is used to value the operations of a company based on the dividend paid, its growth rate and rate of return/WACC. The price is calculated by calculating present value of future dividend payment.

Free cash flow is the residual cash flow of operation after paying the capital expenditure from net income of the company. It represent the cash from the operations.

Formula to calculate the value of operation

Value of Operations = FCF / ( WACC - growth rate )

Value of Operations = $490,000 / ( 13% - 4.4% )

Value of Operations = $5,697,674