Compute the Value of a Firm with Free Cash Flows

question 23

Multiple Choice

Compute the value of a firm with free cash flows of $1 000, $2 500 and $3 000 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.

• A)$31 033
• B)$27 234
• C)$39 343
• D)$26 191

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Definitions:

Demand Payment

A request for the payment of a debt or obligation, often made formally and in writing.

Substantially Performed

A term used in contract law indicating that a party has completed the major obligations of a contract, even if minor details remain unfulfilled.

Benefits Promised

Guarantees or assurances given by an employer to employees, often relating to retirement, health care, or other support.

Case-by-Case Basis

A method of analysis or decision-making where each situation is considered individually, with attention to its unique aspects and details.