Compute the Value of a Firm with Free Cash Flows

question 44

Multiple Choice

Compute the value of a firm with free cash flows of $4 000, $4 500 and $5 000 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)$58 098
• B)$56 191
• C)$59 123
• D)$57 234

---

Definitions:

Direct Labour Hours

The total number of hours worked by employees directly involved in the manufacturing process or delivery of a service.

Applied Overhead

The allocation of estimated overhead costs to specific products or job orders based on a predetermined rate or formula.

Manufacturing Overhead

Includes all the indirect costs associated with the production process, excluding direct materials and direct labor.

Assembly Division

A department or area within a manufacturing firm that is responsible for assembling the components of a product into a finished good.