Consider the Free Cash Flow Approach to Stock Valuation

question 116

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 total value of the equity of F&G Manufacturing Company should be

• A) $1,615,156.50.
• B) $2,479,168.95.
• C) $3,333,333.33.
• D) $4,166,666.67.

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Definitions:

Learned Helplessness

A condition in which an individual learns to feel powerless and stops trying to change their situation, often a result of repeated failures or lack of control.

Seligman's Model

Refers to the learned helplessness theory, proposing that individuals may learn to perceive themselves as powerless in situations of repeated failure or discomfort.

Depressed Individuals

Refers to persons who are experiencing a state of low mood and aversion to activity, significantly affecting their thoughts, behavior, feelings, and sense of well-being.

Attributes

Qualities, features, or characteristics that are inherent in or ascribed to something or someone.