Use the Information for the Question(s)below

question 42

Multiple Choice

Use the information for the question(s) below.
Gonzales Corporation generated free cash flow of $88 million this year.For the next two years,the company's free cash flow is expected to grow at a rate of 8%.After that time,the company's free cash flow is expected to level off to the industry long-term growth rate of 4% per year.Suppose the weighted average cost of capital is 10% and Gonzales Corporation has cash of $100 million,debt of $300 million,and 100 million shares outstanding.
-What is Gonzales Corporation's expected terminal enterprise value in year 2?

• A)$1,779.15
• B)$1,641.60
• C)$1,579.15
• D)$1,441.60
• E)$1,378.35

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Definitions:

Isoquants

Curves representing combinations of inputs which yield the same level of output in production theory, illustrating technical substitution and factor combinations.

MRTS

Marginal Rate of Technical Substitution; the rate at which one input must increase when another input decreases to keep output constant.

Labor

A term referring to the human effort, both physical and mental, used in the production of goods and services.

Marginal Product

The extra output or benefit produced by using one more unit of a given input, such as labor or capital.