Question

Question 2 O out of 2 points REMATE Incorporate expects free cash flow earnings of $13 million next year. Since the firm is mature, it only expects growth of 3% per year. The firm's copy of capital is estimated at 6%. If the firm has $3 million in excess cash and $10 million in debt, what is the enterprise value of the firm? Assume the firm has 10 million shares outstanding. Selected Answer: 45,500,000

Answer 1

Free cash flow at the end of the year (FCF1) = $13,000,000

Growth rate(g) = 3% per year forever

WACC = 6%

Calculating Enterprise Value(EV) of Firm:-

$EV = \frac{FCF_1}{(WACC-g)}$

$EV = \frac{13,000,000}{(0.06-0.03)}$

Enterprise Value = $433,333,333.33

So, Enterprise Value of Firm is $433,333,333.33

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