Consider the Following Data

question 1

Multiple Choice

Consider the following data:
FCF₁ = $7 million; FCF₂ = $45 million; FCF₃ = $55 million. Assume that free cash flow grows at a rate of 4 percent for year 4 and beyond. If the weighted average cost of capital is 10 percent, calculate the value of the firm.

• A)$953.33 million
• B)$801.12 million
• C)$716.25 million
• D)$736.02 million

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Definitions:

Operating Activities

Activities that are directly tied to the production and delivery of goods and services, representing the primary revenue-generating activities of an entity.

Cash Equivalents

Short-term, highly liquid investments that are readily convertible to known amounts of cash and so close to their maturity that they present insignificant risk of changes in value.

Investing Activities

Transactions related to the acquisition or disposal of long-term assets and other investments not classified as cash equivalents.

Financing Activity

Refers to transactions and events that affect long-term liabilities and equity of a company, including securing loans and issuing shares.