petty corporation forecasts 5 pts D Question 18 Petty Corporation forecasts a ne

Question

petty corporation forecasts 5 pts D Question 18 Petty Corporation forecasts a negative free cash flow for the coming year, with FCF1 -$10 million, but it expects positive numbers thereafter, with FCF2 $24 million. After Year 2, FCF is expected to grow at a constant rate of 4% forever. If the weighted average cost of capital is 14%, what is the firm's total corporate value, in millions? Your answer should be between 42.68 and 352.15, rounded to 2 de places, with no special characters. cimal D Question 19

Explanation / Answer

Value after year 2=(FCF for year 2*Growth rate)/(WACC-Growth rate)

=(24*1.04)/(0.14-0.04)=$249.60million

Hence current total corporate value=Future cash flows*Present value of discounting factor(14%,time period)

-10/1.14+24/1.14^2+249.60/1.14^2

=$201.75million(Approx).

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