Judd Corporation has a weighted average cost of capital of 10.25%, and its value of operations is $57.50 million. Free cash flow is expected to grow at a constant rate of 6.00% per year. What is the expected year-end free cash flow, FCF1 in millions?
A) $2.20
B) $2.44
C) $2.69
D) $2.96
E) $3.25

Question

Quizplus · Accepted Answer

$\begin{array}{lr}
\text { Value of operations } & \$ 57.50 \
\text { WACC } & 10.25 \% \
\text { Growth rate } & 6.00 \% \
\mathrm{~V}_{\text {ops }}=\mathrm{FCF}_{1} /(\text { WACC }-\mathrm{g}), \text { so } \mathrm{FCF}_{1}= & \
\mathrm{V}_{\text {ops }}(\mathrm{WACC}-\mathrm{g}) & \
\text { Expected } \mathrm{FCF}=\mathrm{FCF}_{1}=\mathrm{V}_{\text {ops }}(\mathrm{WACC}-\mathrm{g})= & \$ 2.44
\end{array}$

Judd Corporation Has a Weighted Average Cost of Capital of 10.25