7. Determinants of intrinsic value

Which of the following correctly represents a firms fundamental value?

The ratio of the firms free cash flows and its weighted average cost of capital.

The present value of the firms expected free cash flows.

The difference between the firms free cash flows and its costs.

The following table presents some of the current years financial data for the Happy Giraffe Construction Company. Complete the table by computing Happy Giraffes free cash flows and fundamental value (rounded to the nearest whole dollar) based solely on this years information:

Variable	Value
Sales revenue	$400,000
Operating costs and taxes	$45,000
Required investments in operating capital	$20,000
Weighted average cost of capital	15%
Annual free cash flow
Fundamental value

Assuming all other things being equal, if Happy Giraffes costs of equity decreases, the firms will