Question

Justus Motor Co.has a WACC of 11.50%, and its value of operations is $25.00 million. Justus's free cash flow is expected to grow at a constant rate of 7.00%. What was the last free cash flow, FCF0 in millions?a. $0.95b. $1.05c. $1.16d. $1.27e. $1.40

Answer 1

Answer:

$FCF_0=1.05$

So option (b) is correct option

Explanation:

We have given value of operation PV = $25.00

WACC, that is $Ke$ = 11.50% = 0.1150

It is grow at a constant rat of 7 % so g = 0.07

We have to find the value of $FCF_0$

We know that value of operation is given by

$PV=\frac{FCF_0(1+g)}{Ke-g}$

So $25=\frac{FCF_0(1+0.07)}{0.1150-0.07}$

$FCF_0=1.05$

So option (b) is correct option