Consider the Free Cash Flow Approach to Stock Valuation

question 94

Multiple Choice

Consider the free cash flow approach to stock valuation. F&G Manufacturing Company is expected to have before-tax cash flow from operations of $750,000 in the coming year. The firm's corporate tax rate is 40%. It is expected that $250,000 of operating cash flow will be invested in new fixed assets. Depreciation for the year will be $125,000. After the coming year, cash flows are expected to grow at 7% per year. The appropriate market capitalization rate for unleveraged cash flow is 13% per year. The firm has no outstanding debt. The projected free cash flow of F&G Manufacturing Company for the coming year is

• A) $250,000.
• B) $180,000.
• C) $300,000.
• D) $380,000.

---

Definitions:

U.S. Military Budget

The portion of the United States federal budget allocated for defense and military purposes, including personnel, operations, and equipment.

Communist Regimes

Governments based on communist principles, typically characterized by the absence of private ownership and the state control of resources and industry.

Walter Lippmann

An influential American journalist and commentator known for his works on media and public opinion.

Containment Doctrine

A foreign policy strategy adopted by the United States during the Cold War aiming to prevent the spread of communism by providing political, military, or economic assistance to threatened nations.