The free cash flow to the firm is reported as $205 million. The interest expense to the firm is $22 million. If the tax rate is 35% and the net debt of the firm increased by $25, what is the market value of the firm if the FCFE grows at 2% and the cost of equity is 11%? a. $2,168 billionb. $2,397 billionc. $2,565 billiond. $2,998 billion

The correct answer is $2,444.6 billion

Explanation:

FCFE = FCF + Increase in debt - Interest (1-t)

= $205+$25-$22 (1-0.35)

=$215.7

Market Value = [ (215.7) 1.02) ] / [11%-2%]

=$2,444.6

Assuming a single period growth rate of 2%,

the forecasted FCFE = $215.7 (1+0.02)

=$220.01 billion

Although this is not available in the options provided,$220.01 billion is the correct answer.