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Mooradian Corporation’s free cash flow during the just-ended year (t = 0) was $160 million, and its FCF is expected to grow at a constant rate of 5.0% in the future. Assume the firm has zero non-operating assets. If the weighted average cost of capital is 12.5%, what is the firm’s total corporate value, in millions?

Respuesta :

abiolataiwo2015

The firm’s total corporate value, in millions is: $22,400,000.

Using this formula

Firm Total Corporate Value =Free cash flow (1+ Growth) / Average cost of capital  - Growth

Where:

Free cash flow=$160 million

(1+ Growth) =(1+5.0%)

Average cost of capita=12.5%

Growth=5%

Let plug in the formula

Firm Total Corporate Value= $160,000.000 ( 1+0.05)/12.5%-5%

Firm Total Corporate Value=$160,000,000(1.05)/7.5%

Firm Total Corporate Value=$168,000,000/7.5%

Firm Total Corporate Value=$22,400,000

Inconclusion the firm’s total corporate value, in millions is: $22,400,000.

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