Question

Kale Inc. forecasts the free cash flows (in millions) shown below. Assume the firm has zero non-operating assets. If the weighted average cost of capital is 10.0% and FCF is expected to grow at a rate of 5.0% after Year 2, then what is the firm’s total corporate value (in millions)? Do not round intermediate calculations.

Year	1	2
Free Cash flow	$50	$100

		a. $1,945
		b. $1,665
		c. $1,295
		d. $1,864
		e. $2,045

Answer 1

Correct Answer is option D
Enter the stroke in the financial calculator in cash flow mode -
C1 = 50
C2 = 100 + terminal value
C2= 100+ 2100 = 2200
I = 10
CPT -NPV = 1863.63
Corporate value of Firm = $1864
Terminal value is calculated -
FCF is grow at 5% = (100 + 100*5%) / (Re - g)
Terminal value = 105 / (0.10 - 0.05)
teminal value = 2100

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