Suppose Yon Sun Corporation's free cash flow during the just-ended year (t = 0) was $100 million, and FCF is expected to grow at a constant rate of 5% in the future. If the weighted average cost of capital is 15%, what is the firm's value of operations, in millions?

Question

Quizplus · Accepted Answer

The firm's value of operations can be calculated using the formula for the value of a perpetuity growing at a constant rate: Value = FCF * (1 + g) / (WACC - g). Substituting the given values: Value = $100 million * (1 + 0.05) / (0.15 - 0.05) = $1,050 million.

Suppose Yon Sun Corporation's Free Cash Flow During the Just-Ended