A Firm Sells a Product That It Realizes Is Short-Lived

question 76

Multiple Choice

A firm sells a product that it realizes is short-lived and thus the firm plans to close after 2 more years. The firm expects to have free cash flows of $398,000 next year and $211,000 in Year 2 after incurring the costs of closing. The firm's cost of equity is 14% and its cost of debt is 5.5%. What is the present value of the firm if its debt to value ratio is 40%?

• A) $458,008
• B) $481,707
• C) $500,614
• D)$532,349

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Definitions:

Sale on Approval

A transaction in which goods are delivered to a buyer for examination before the sale is finalized, allowing for return if not satisfied.

Voidable Title

A title to property or goods that may be declared invalid by a court due to fraud, incapacity, or other issues, allowing the person harmed to void the transaction.

Bona Fide Purchaser

An innocent buyer for valuable consideration who purchases goods without notice of any defects in the title of the goods acquired.

Regular Course

This term typically refers to actions or operations that are conducted in the normal and usual manner, according to established patterns or procedures.