Suppose Boyson Corporation's projected free cash flow for next year is FCF₁ = $100,000,and FCF is expected to grow at a constant rate of 6.5%.If the company's weighted average cost of capital is 11.5%,what is the firm's total corporate value?

Question

Quizplus · Accepted Answer

Using the Gordon Growth Model, we can calculate the total corporate value: 
Total Corporate Value = (FCF1 / (WACC - g))
where FCF1 = $100,000 and g = 6.5% = 0.065, and WACC = 11.5% = 0.115
Total Corporate Value = ($100,000 / (0.115 - 0.065)) = $2,000,000
Therefore, the best choice is C, $2,000,000.

Suppose Boyson Corporation's Projected Free Cash Flow for Next Year