Compute the Value of a Firm with Free Cash Flows

question 36

Multiple Choice

Compute the value of a firm with free cash flows of $4000,$4500,and $5000 over the next three years,a terminal firm value of $60,000 after three years,and the unlevered cost of capital is 10%.Assume that the interest rate tax shield is zero.

• A)$56,191
• B)$57,234
• C)$58,098
• D)$59,123
• E)$61,431

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Definitions:

Stock Split

An increase in a firm’s shares outstanding without any change in owner’s equity.

Retained Earnings

Profit that is not distributed to the shareholders but is kept by the company for future investment or to pay off debt.

Dividend Income

Income received from owning shares of a company in the form of dividends.