A Firm Plans a New Expansion,which Will Result in Free

question 75

Multiple Choice

A firm plans a new expansion,which will result in free cash flows of $50,000 in year 1,$60,000 in year 2,and $70,000 in year 3.The firm's continuation value after 3 years is $540,000.The expansion requires an investment of $40,000 today,and will be financed entirely with debt,resulting in an interest expense of $8,000 in each of the 3 years.If the firm's unlevered cost of capital is 9%,and its cost of debt is 6%,what is the firm's value?

• A)$548,788
• B)$527,404
• C)$547,654
• D)$664,087
• E)$416,979

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Definitions:

Marginal Utility

The additional satisfaction or utility that a consumer receives from consuming one more unit of a good or service.

Total Utility

The total satisfaction received from consuming a given total quantity of a good or service.

Marginal Utility

The increase in contentment or advantage a person obtains by consuming another unit of a good or service.

Marginal Utility

The additional satisfaction or usefulness obtained from acquiring or consuming one more unit of a product.