Kale Inc. forecasts the free cash flows (in millions) shown below. If the weighted average cost of capital is 11.0% and FCF is expected to grow at a rate of 5.0% after Year 2, what is the firm's total corporate value, in millions?

Question

Quizplus · Accepted Answer

The correct answer is A. The total corporate value is the sum of the present value of the free cash flows for the next two years and the present value of the terminal value. The terminal value is calculated as the free cash flow in Year 3 divided by the weighted average cost of capital minus the growth rate. The present value of the free cash flows for the next two years is calculated using the formula: PV = FCF / (1 + r)^n, where r is the weighted average cost of capital and n is the number of years. The present value of the terminal value is calculated using the formula: PV = TV / (r - g), where g is the growth rate. The total corporate value is then calculated as the sum of the present value of the free cash flows for the next two years and the present value of the terminal value.

Kale Inc Forecasts the Free Cash Flows (In Millions) Shown Below