Business, 07.04.2020 23:37 marvin07

A company forecasts free cash flow in next year to be $20 million, $25 million in second year, and 30 million in third year. After the third year, free cash flow will grow at a constant rate of 5 percent per year. If the overall cost of capital (WACC) is 10 percent, what is the current value from operations, to the nearest million

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Answer from: fgcherubin

Current value from operations is $534.71 million.

Explanation:

The value from operations can be calculated by discounting back the free cash flow of the firm. The first three year's FCF will be discounted back using the WACC and when the growth rate o FCF becomes constant after Year 3, the terminal value will be calculated and discounted back too.

The current value from operations = FCF1 / (1+WACC) + FCF2 / (1+WACC)² + FCF3 / (1+WACC)³ + [FCF3 * (1+g) / WACC - g] / (1+WACC)³

Current value from operations = 20 / (1+0.1) + 25 / (1+0.1)² + 30 / (1+0.1)³ + [30 * (1+0.05) / (0.1 - 0.05)] / (1+0.1)³

Current value from operations = $534.71 million

Answer from: tmiller2862

$535 million

Explanation:

Value of operations = present value of next 3 years FCF + present value of terminal value at end of 3 years

Terminal value at end of 3 years = Year 3 FCF * (1 + constant growth rate after 3 years) / (WACC - constant growth rate after 3 years)

Present value = future value / (1 + required return)number of years

The required return is the WACC

Value of operations = $535 million

Answer from: Quest

the answer is "b.the increased supply will create a surplus. "

the essential thought behind price controls is straightforward - utilize the power of law to modify the equilibrium of a market. for instance, the legislature may choose that the steel business needs to survive, and in this way pass a law to set a value floor on steel. this implies all steel sold must offer at or over the floor value, which must be set over the equilibrium cost for it to have any impact. the switch could likewise happen - the administration can choose that steel is excessively costly and set a value roof underneath its equilibrium value, with the goal that all steel must be sold at or beneath that ceiling.

Answer from: Quest

Ithink that’s the oneplus7pro

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A company forecasts free cash flow in next year to be $20 million, $25 million in second year, and 3...

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