Suppose Boyson Corporation's projected free cash flow for next year is FCF1 = $150,000, and FCF is expected to grow at a constant rate of 6.5%. If the company's weighted average cost of capital is 11.5%, what is the firm's total corporate value? a. $2,572,125 b. $2,707,500 c. $2,850,000 d. $3,000,000 e. $3,150,000

Question

Valerie Young

Business

8 August, 17:22

Suppose Boyson Corporation's projected free cash flow for next year is FCF1 = $150,000, and FCF is expected to grow at a constant rate of 6.5%. If the company's weighted average cost of capital is 11.5%, what is the firm's total corporate value? a. $2,572,125 b. $2,707,500 c. $2,850,000 d. $3,000,000 e. $3,150,000

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Answers (1)

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Eli Grant · Answer 1

The total corporate value of the firm is $3,000,000

Explanation:

The total corporate value of the firm is computed as:

Total corporate value = FCF1 / (average cost of capital - Growth rate)

Where

FCF1 is $150,000

Growth rate is 6.5%

average cost of capital is 11.5%

Putting the values:

= $150,000 / (11.5% - 6.5%)

= $150,000 / 5%

= $3,000,000