Compute the value of a firm with free cash flows of $9,000, $7,000, and $5,000 over the next three years, a terminal firm value of $30,000 after three years, and the unlevered cost of capital is 10%. Assume that the interest rate tax shield is zero.
A) $36,109
B) $37,098
C) $38,745
D) $40,263

Question

Quizplus · Accepted Answer

D) Compute the present value of the free cash flows and the terminal value.
Using CF keys of a financial calculator, CF1 = 9,000, CF2 = 7,000, CF3 = 5,000 + 30,000;
PV at interest rate of 10 = $40,263

Compute the Value of a Firm with Free Cash Flows