Use the information for the question(s)below.
Gonzales Corporation generated free cash flow of $88 million this year.For the next two years,the company's free cash flow is expected to grow at a rate of 8%.After that time,the company's free cash flow is expected to level off to the industry long-term growth rate of 4% per year.Suppose the weighted average cost of capital is 10% and Gonzales Corporation has cash of $100 million,debt of $300 million,and 100 million shares outstanding.
-What is Gonzales Corporation's expected free cash flow in year 2?

Question

Quizplus · Accepted Answer

The expected free cash flow in year 2 can be calculated by growing the initial free cash flow of $88 million by 8% for two years. The calculation is as follows: Year 1 FCF = $88 million * (1 + 8%) = $95.04 million. Year 2 FCF = $95.04 million * (1 + 8%) = $102.64 million.

Use the Information for the Question(s)below