Explain the following diagram.

Your discussion should include descriptions of FCF and WACC, the effect of cash flow size, timing and risk, and how a firm increases its value.

Your answer should be 4 to 6 sentences in length and point form is acceptable.

Market Sales Revenues Operating Costs and Taxes Required Investments in Operations Financing Decisions Interest Rates Firm Risk Risk Free Cash Flows (FCF Weighted Average Cost of Capital (WACC) FCF Value of the Firm FCF FCF (1 + WACC) (1 + WACC) + Value = (1 + WACC) FCF (1 + WACC)