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21 November, 11:46

Suppose Boyson Corporation's projected free cash flow for next year is FCF1 = $150,000, and FCF is expected to grow at a constant rate of 6.5%. If the company's weighted average cost of capital is 11.5%, what is the firm's total corporate value? a. $2,572,125 b. $2,707,500 c. $2,850,000 d. $3,000,000 e. $3,150,000

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  1. 21 November, 14:23
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    The total corporate value of the firm is $3,000,000

    Explanation:

    The total corporate value of the firm is computed as:

    Total corporate value = FCF1 / (average cost of capital - Growth rate)

    Where

    FCF1 is $150,000

    Growth rate is 6.5%

    average cost of capital is 11.5%

    Putting the values:

    = $150,000 / (11.5% - 6.5%)

    = $150,000 / 5%

    = $3,000,000
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