Question
Net income $60,000 + Depreciation +$6,000 - Capital Expenditures -$7,000 - Increases in Working Capital -$2,000 =Free Cash Flow $57,000 Vega Music's projected net income
| Net income | $60,000 |
| + Depreciation | +$6,000 |
| - Capital Expenditures | -$7,000 |
| - Increases in Working Capital | -$2,000 |
| =Free Cash Flow | $57,000 |
Vega Music's projected net income and free cash flows are given above in thousands of dollars. Vega expects their free cash flows to increase by 5% per year. If Vega were able to reduce its annual increase in working capital by 15% without affecting the growth rate of their free cash flows, what would be the effect of this reduction on Vega's value, given a cost of capital of 11%?
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An Introduction To Financial Markets A Quantitative Approach
Authors: Paolo Brandimarte
1st Edition
1118014774, 9781118014776
