Consider the Free Cash Flow Approach to Stock Valuation

question 50

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
• E)none of the above

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