Zhdanov Inc.forecasts that its free cash flow in the coming year,i.e.,at t = 1,will be -$10 million,but its FCF at t = 2 will be $20 million.After Year 2,FCF is expected to grow at a constant rate of 4% forever.If the weighted average cost of capital is 14%,what is the firm's value of operations,in millions?

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To find the firm's value of operations, we use the formula for the value of a growing perpetuity starting at time t = 2, given the FCF at t = 2 and the growth rate thereafter. First, calculate the present value (PV) of FCF at t = 1 and t = 2:PV of FCF at t = 1 = FCF1 / (1 + WACC)^1 = -$10M / (1 + 0.14)^1 = -$10M / 1.14 = -$8.77MPV of FCF at t = 2 = FCF2 / (1 + WACC)^2 = $20M / (1 + 0.14)^2 = $20M / 1.2996 = $15.39MThen, calculate the terminal value (TV) at t = 2 using the formula for a growing perpetuity: TV = FCF3 / (WACC - g) = FCF2 * (1 + g) / (WACC - g), where FCF3 is the FCF at t = 3:TV = $20M * (1 + 0.04) / (0.14 - 0.04) = $20.8M / 0.1 = $208MNow, discount the TV back to present value at t = 0:PV of TV = TV / (1 + WACC)^2 = $208M / 1.2996 = $160.12MFinally, add the PV of FCF at t = 1, PV of FCF at t = 2, and PV of TV to get the firm's value of operations:Value of operations = PV of FCF at t = 1 + PV of FCF at t = 2 + PV of TV = -$8.77M + $15.39M + $160.12M ≈ $166.74M, which rounds to $167M.