Vega Music's Projected Net Income and Free Cash Flows Are

question 106

Multiple Choice

Vega Music's projected net income and free cash flows are given above in thousands of dollars.Vega expects their net income and increases in net working capital to increase by 5% per year.If Vega were able to reduce its annual increase in working capital by 10% without affecting any other part of the business adversely,what would be the effect of this reduction on Vega's value,given a cost of capital of 13%?

• A) an increase of $500,000
• B) an increase of $1,370,000
• C) an increase of $2,500,000
• D) an increase of $3,800,000
• E) an increase of $350,000

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Definitions:

Service Shops

Businesses that provide professional or technical services rather than products, often requiring specialized labor or skills.

Mass Services

Services provided on a large scale to a broad population where individual customer interactions are relatively uniform and low in complexity.

Process Costing

A costing method used in industries where production is continuous, assigning costs to units of output on the basis of average costs for each process or department.

Labour

Labour refers to human work effort, both physical and mental, used in the production of goods and services.