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1. If a firm expects to have its free cash flows grow by 5.0% per year...

1. If a firm expects to have its free cash flows grow by 5.0% per year and investors are demanding a 30.0% rate of return, the value of the firm is what multiple of free cash flows?

A. 20

B. 3 and 1/3

C. 4.0

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Answer #1

Value of Firm = FCFF1/(r - g)

Value of Firm/FCFF1 = 1/(0.30 - 0.05)

Value of Firm/FCFF1 = 4.0

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