Ted Corporation Expects to Generate Free-Cash Flows of $200,000 Per

question 19

Multiple Choice

Ted Corporation expects to generate free-cash flows of $200,000 per year for the next five years. Beyond that time, free cash flows are expected to grow at a constant rate of 5 percent per year forever. If the firm's average cost of capital is 15 percent, the market value of the firm's debt is $500,000, and Ted has a half million shares of stock outstanding, what is the value of Ted stock?

• A) $2.43
• B) $3.43
• C) $1.43
• D) $0.00

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Definitions:

Intellectual Capital

The collective knowledge, skills, and abilities of an organization's workforce, including innovations, processes, and relationships, which can contribute to competitive advantage.

Structural Capital

The knowledge, processes, patents, or systems that an organization possesses, contributing to its competitive advantage.

Employee Capital

The value employees bring to a company in terms of their skills, knowledge, and experience.

Knowledge Management

The act of generating, disseminating, utilizing, and overseeing an organization's knowledge and information to fulfill its goals.