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Compute the Value of a Firm with Free Cash Flows

question 60

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Compute the value of a firm with free cash flows of $1000,$2500,and $3000 over the next three years,a terminal firm value of $40,000 after three years,and the unlevered cost of capital is 15%.Assume that the interest rate tax shield is zero.


Definitions:

Payback

The period of time it takes for an investment to generate an amount of income or cash equal to the cost of the investment.

Discounted Payback

A capital budgeting method that calculates the time needed to recoup the initial investment in present value terms.

Compute

The process of using mathematical and logical operations to perform tasks and solve problems by a computer.

Average Accounting Return

The average accounting return is a financial ratio that represents the average annual accounting profit compared to the initial investment.

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