Suppose Boyson Corporation's projected free cash flow for next year is FCF₁ = $250,000,and FCF is expected to grow at a constant rate of 6.5%.Assume the firm has zero non-operating assets.If the company's weighted average cost of capital is 11.5%,then what is the firm's total corporate value?

Question

Quizplus · Accepted Answer

To find the total corporate value of the firm, we can use the formula:
Corporate Value = FCFF / (WACC - g)
where FCFF is the free cash flow to the firm, WACC is the weighted average cost of capital, and g is the expected growth rate of FCFF.

In this case, FCFF = FCF / (1 + g) = 250,000 / (1 + 0.065) = $264,125.42
WACC = 11.5%
g = 6.5%

Plugging these values into the formula, we get:
Corporate Value = 264,125.42 / (0.115 - 0.065) = $5,000,000

Therefore, the best choice is C, $5,000,000.

Suppose Boyson Corporation's Projected Free Cash Flow for Next Year