Compute the value of a firm with free cash flows of $1,000, $2,500, and $3,000 over the next three years, a terminal firm value of $40,000 after three years, and the unlevered cost of capital is 15%. Assume that the interest rate tax shield is zero.
A) $26,191
B) $27,234
C) $31,033
D) $39,343

Question

Quizplus · Accepted Answer

C) Compute the present value of the free cash flows and the terminal value.
Using CF keys of a financial calculator, CF1 = 1,000, CF2 = 2,500, CF3 = 3,000 + 40,000;
PV at interest rate of 15 = $31,033

Compute the Value of a Firm with Free Cash Flows