Compute the Value of a Firm with Free Cash Flows

question 79

Multiple Choice

Compute the value of a firm with free cash flows of $9,000, $7,000, and $5,000 over the next three years, a terminal firm value of $30,000 after three years, and the unlevered cost of capital is 10%. Assume that the interest rate tax shield is zero.

• A) $36,109
• B) $37,098
• C) $38,745
• D) $40,263

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Definitions:

Capacity

The maximum amount of work that an organization is capable of completing in a given period of time.

Variable Costing

A costing method that includes only variable manufacturing costs—direct materials, direct labor, and variable manufacturing overhead—in unit product costs.

Unsold Units

Inventory items that have been produced or acquired but have not yet been sold to customers.

Selling Price

The price at which a product or service is sold to customers, determined by factors like cost, demand, competition, and market conditions.