Income Approaches: You Are Using the FCFC Approach to Value

question 73

Multiple Choice

Income approaches: You are using the FCFC approach to value a business. The estimated FCFC for next year will be $13.6 million, and it will increase at a rate of 6 per cent for each of the following five years. After that point, the FCFC will increase at a rate of 3 per cent forever. If the WACC for this company is 8 per cent, what is it worth?

• A) $384 million
• B) 354 million
• C) $241 million
• D) $144 million

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Definitions:

Government Policy

Refers to the actions or inaction of a government intended to influence or control economic, social, or political matters.

Adverse Events

Unintended and generally negative outcomes or occurrences associated with a particular process, treatment, or action.

Borrow And Lend

The process of obtaining funds (borrowing) from another party with the obligation to return the funds often with interest (lending).

Short Term Variations

Fluctuations that occur in economic variables over shorter timeframes, usually less than a year.