Question
Heath and Logan Inc. forecasts the free cash flows (in millions) shown below. The weighted average cost of capital is 13%, and the FCFs are
Heath and Logan Inc. forecasts the free cash flows (in millions) shown below. The weighted average cost of capital is 13%, and the FCFs are expected to continue growing at a 5% rate after Year 3. Assuming that the ROIC is expected to remain constant in Year 3 and beyond, what is the Year 0 value of operations, in millions?
| Year: | 1 | 2 | 3 |
| Free cash flow: | $15 | $10 | $40 |
| a. | $331 | |
| b. | $315 | |
| c. | $367 | |
| d. | $386 | |
| e. | $348 |
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CFP Board Financial Planning Competency Handbook
Authors: CFP Board
2nd Edition
1119094968, 978-1119094968
