Gonzales Corporation Generated Free Cash Flow of $88 Million This

question 23

Multiple Choice

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 10%. 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. If the weighted average cost of capital is 12% 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) $1384.24
• B) $1245.82
• C) $1107.39
• D) $968.97

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Definitions:

Content Validity

An indicator of construct validity of a measure in which the content of the measure is compared to the universe of content that defines the construct.

Discriminant Validity

The extent to which a construct is truly distinct from other constructs by correlating minimally with measures of different constructs.

Construct

A construct is an abstract idea or concept that is specifically chosen or created for scientific inquiry or measurement.

Face Validity

The degree to which a test or measure appears to assess what it claims to measure, based on a superficial examination, rather than through rigorous validation methods.