Monroe Electronics' projected net income and free cash flows are given above in thousands of dollars.Monroe expects their net income and increases in net working capital to increase by 4% per year.and has a cost of capital of 8%.Monroe wishes to achieve a 5% increase in firm value.If the rest of the business remains unchanged,what reduction in working capital increases would Monroe require in order to achieve this goal?

Question

Quizplus · Accepted Answer

B) Initial value = 84,000 / (0.08 - 0.04) = $2,100,000;
final value = $2,100,000 × 1.05 = $2,205,000
New free cash flow = 2,205,000 × (0.08 - 0.04) = 88,200.
Change in working capital = 88,200 - 84,000 = 4,200

Monroe Electronics' Projected Net Income and Free Cash Flows Are