Al's Market plans to close after 3 more years. The firm expects to have free cash flows of $148,000 next year, $128,000 in Year 2, and $65,000 in Year 3 after incurring the costs of closing. The firm's cost of equity is 15.5% and its cost of debt is 6.2%. What is the present value of the firm if its debt to value ratio is 30%?

Question

Quizplus · Accepted Answer

WACC = 0.3(6.2%) + (1 - 0.3)(15.5%) = 12.71%PV = $148,000/1.1271 + $128,000/1.1271² + $65,000/1.1271³ = $277,467

Al's Market Plans to Close After 3 More Years