Question

Suppose Boyson Corporation’s projected free cash flow for next year is $100,000, and FCF is expected to grow at a constant rate of 6.5%. If the company’s weighted average cost of capital is 11.5% and the required return on equity is 14.5%, what is the firm’s total corporate value?

Answer 1

$2,000,000

Step-by-step explanation:

The computation of the firm total corporate value is shown below:

The firm corporate value is

= Free cash flow for next year ÷ (weighted average cost of capital - growth rate)

= $100,000 ÷ (11.5% - 6.5%)

= $2,000,000

We simply applied the above formula to find out the firm corporate value

And ignored the required rate on equity i.e 14.5%