Use the Information for the Question(s)below

question 74

Multiple Choice

Use the information for the question(s) below.
Flagstaff Enterprises expected to have free cash flow in the coming year of $8 million,and this free cash flow is expected to grow at a rate of 3% per year thereafter.Flagstaff has an equity cost of capital of 13%,a debt cost of capital of 7%,and it has a 35% corporate tax rate.
-If Flagstaff currently maintains a debt to equity ratio of 1,then the value of Flagstaff as an all-equity firm would be closest to:

• A)$73 million.
• B)$80 million.
• C)$115 million.
• D)$100 million.

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Definitions:

Financial Planning

The process of setting financial goals, policies, procedures, and programs to guide the acquisition, use, and management of financial resources over time.

Operating Policies

Rules, guidelines, and procedures established by a company's management to guide the operations and decision-making within the organization.

Financing Policies

Strategies or guidelines that a company follows to decide how to finance its projects, operations, or investments, typically involving decisions between using debt or equity.

Dividend Policy

A company's approach to distributing profits back to its shareholders either in the form of cash payments or additional shares.