ZuoTi.Pro
Question

Mack Industries' free cash flow last year was $1 million (i.e., FCF0 = $1 million). You...

Mack Industries' free cash flow last year was $1 million (i.e., FCF0 = $1 million). You project the company's free cash flow to grow 20% this year (i.e., FCF1 = $1.2 million) and 15% next year. After two years its free cash flow is expected to grow at a constant rate of 5%. The cost of capital is 12%. What is the company's present value of operations (VOP)?

A. $12.23 million

B. $18.67 million

C. $16.65 million

D. $16.91 million

business   finance   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

FCF1=$1.2 million

FCF2=(1.2*1.15)=$1.38million

Value after year 2=(FCF2*Growth Rate)/(Cost of capital-Growth Rate)

=(1.38*1.05)/(0.12-0.05)

=$20.7million

Hence VOP=Future FCF*Present value of discounting factor(12%,time period)

=1.2/1.12+1.38/1.12^2+20.7/1.12^2

which is equal to

=$18.67 million(Approx).

0 0
Add a comment
Know the answer?
Add Answer to:
Mack Industries' free cash flow last year was $1 million (i.e., FCF0 = $1 million). You...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • Diversified Industries, Inc. forecasts that its free cash flow in the coming year, i.e., at t...

    Diversified Industries, Inc. forecasts that its free cash flow in the coming year, i.e., at t = 1, will be -$18 million (negative), but its FCF at t = 2 will be $33 million. After Year 2, FCF is expected to grow at a constant rate of 4% forever. If the weighted average cost of capital is 15%, what is the firm's value of operations, in millions? Enter your answer rounded to two decimal places. Do not enter $ or...

  • Diversified Industries, Inc. forecasts that its free cash flow in the coming year, i.e., at t...

    Diversified Industries, Inc. forecasts that its free cash flow in the coming year, i.e., at t = 1, will be -$18 million (negative), but its FCF at t = 2 will be $33 million. After Year 2, FCF is expected to grow at a constant rate of 4% forever. If the weighted average cost of capital is 13%, what is the firm's value of operations, in millions? Enter your answer rounded to two decimal places. Do not enter $ or...

  • Jacksonville Co. had free cash flow of $200 million last year, and free cash flow is...

    Jacksonville Co. had free cash flow of $200 million last year, and free cash flow is expected to grow at 5% next year and for all future years. Assuming the WACC is 15%, what is the firm's value of operations (in millions)? $2,316 $2,100 $1,896 $2,000 $2,206

  • Kedia Inc. forecasts a negative free cash flow for the coming year, FCF1 = -$10 million,...

    Kedia Inc. forecasts a negative free cash flow for the coming year, FCF1 = -$10 million, but it expects positive numbers thereafter, with FCF2 = $25 million. After Year 2, FCF is expected to grow at a constant rate of 4% forever. If the weighted average cost of capital is 14.0%, what is the firm's total corporate value, in millions?

  • Zhdanov, Inc. forecasts that its free cash flow in the coming year, i.e., at t = 1, will be -$15 million (negative), but...

    Zhdanov, Inc. forecasts that its free cash flow in the coming year, i.e., at t = 1, will be -$15 million (negative), but its FCF at t = 2 will be $30 million. After Year 2, FCF is expected to grow at a constant rate of 3% forever. If the weighted average cost of capital is 17%, what is the firm's value of operations, in millions? Enter your answer rounded to two decimal places. Do not enter $ or comma...

  • 3. A company forecasts free cash flow in one year to be -$80 million and free...

    3. A company forecasts free cash flow in one year to be -$80 million and free cash flow in two years to be $200 After the second year, free cash flow will grow at a constant rate of 6 percent per year forever. If the overall cost of capital is 14 percent, what is: a. The horizon value? b. The current value of operations? . The value of company's operations is $400 million. The company's balance sheet shows $20 million...

  • Edit question XYZ Corporation, Inc. forecasts that its free cash flow in the coming year, i.e.,...

    Edit question XYZ Corporation, Inc. forecasts that its free cash flow in the coming year, i.e., at t = 1, will be -$18 million (negative), but its FCF at t = 2 will be $49 million. After Year 2, FCF is expected to grow at a constant rate of 5% forever. If the weighted average cost of capital is 18%, what is the firm's value of operations, in millions?

  • 1 Year Free Cash Flow 2 $26 million $22 million 3 $29 million 4 $30 million...

    1 Year Free Cash Flow 2 $26 million $22 million 3 $29 million 4 $30 million 5 $32 million General Industries is expected to generate the above free cash flows over the next five years, after which free cash flows are expected to grow at a rate of 6% per year. If the weighted average cost of capital is 10% and General Industries has cash of $15 million, debt of $45 million, and 80 million shares outstanding, what is General...

  • A93 Kedia Inc. forecasts a negative free cash flow for the coming year, FCF1 = −$10...

    A93 Kedia Inc. forecasts a negative free cash flow for the coming year, FCF1 = −$10 million, but it expects positive numbers thereafter, with FCF2 = $25 million. After Year 2, FCF is expected to grow at a constant rate of 4% forever. If the weighted average cost of capital is 18.0%, what is the firm's total corporate value, in millions?

  • Lex Corp. is expected to generate a free cash flow (FCF) of $7,520.00 million this year...

    Lex Corp. is expected to generate a free cash flow (FCF) of $7,520.00 million this year (FCF1 = $7,520.00 million), and the FCF is expected to grow at a rate of 21.40% over the following two years (FCF, and FCF3). After the third year, however, the FCF is expected to grow at a constant rate of 2.82% per year, which will last forever (FCFA). Assume the firm has no nonoperating assets. If Lex Corp.'s weighted average cost of capital (WACC)...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT