Question

The projected cash flow for the next year for Minesuah Inc. is $100,000, and FCF is expected to grow at a constant rate of 6%. If the company's weighted average cost of capital is 11%, what is the value of its operations?

Answer 1

$2,000,000

Step-by-step explanation:

Menesuah incorporation has a projected cash flow of $100,000

FCF is expected to grow at a constant rate of 6%

The weighted average cost of capital is 11%

Therefore the value of its operation can be calculated as follows

= 100,000/(11/100-6/100)

= 100,000/0.11-0.06

= 100,000/0.05

= $2,000,000

Hence the value of its operation is $2,000,000