Suppose BC Corp.'s free cash flow in the previous year was $50,000,and FCF is expected to grow at a constant rate of 3%.If the company's weighted average cost of capital is 15%,what is the value of its operations?

Question

Quizplus · Accepted Answer

The formula for the valuation of operations using the constant growth model is:

Value of Operations = Free Cash Flow / (WACC - Growth rate)

We are given that the Free Cash Flow is $50,000 and the growth rate is 3%. The WACC is 15%. So,

Value of Operations = $50,000 / (15% - 3%) = $429,167.

Therefore, the best choice is D.