Question #84

Reading: Reading 21 Free Cash Flow Valuation

PDF File: Reading 21 Free Cash Flow Valuation.pdf

Page: 40

Status: Unattempted

Correct Answer: A

Part of Context Group: Q84-86 First in Group
Shared Context
- The free cash flow to the firm (FCFF) for the current year is closest to: A) $2.39 million. B) $2.31 million. C) $3.57 million.
Question
The estimated value of the firm is closest to:
Answer Choices:
A. $50 million
B. $47 million
C. $38 million
Explanation
The value of BIC using a stable-growth FCFF model is $49.95 million, calculated as: FCFF = [$6.00m × (1 − 0.40)] + $0.63m − $1.25m − $0.59m. = $2.39m WACC = (0.60 × 0.16) + [0.40 × 0.105 × (1 × 0.40)] = 12.12%. Estimated value = ($2.39m × 1.07) / (0.1212 − 0.07)= $49.95 million.
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