Ryan Enterprises forecasts the free cash flows (in millions)
shown below. The weighted average cost of capital is 13.0%, and the
FCFs are expected to continue growing at a 5.0% rate after Year 3.
What is the firm's total corporate value, in millions?
Year 
1 
2 
3 
FCF 
−$15.0 
$10.0 
$40.0 
a. 
$386.13 

b. 
$314.51 

c. 
$348.48 

d. 
$366.82 

e. 
$331.06 
The value of the firm is computed as shown below:
= FCF1 / (1 + WACC) + FCF 2 / (1 + WACC)^{2} + FCF3 / (1 + WACC)^{3} + 1 / (1 + WACC)^{3} [ ( FCF in year 3 (1 + growth rate) / (WACC  growth rate) ]
=  $ 15 million / 1.13 + $ 10 million / 1.13^{2} + $ 40 million / 1.13^{3} + 1 / 1.13^{3} [ ($ 40 million (1 + 0.05) / (0.13  0.05) ]
=  $ 15 million / 1.13 + $ 10 million / 1.13^{2} + $ 40 million / 1.13^{3} + $ 525 million / 1.13^{3}
= $ 386.13 million Approximately
So, the correct answer is option a.
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