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If Hart Enterprises reduces its WACC to 10%, will the value of Hart Enterprises increase or decrease? Explain your answer? On December 31, 2006, a stock analyst has foretasted that Hart Enterprises should generate free cash flows of $1,500 in 2007 and $2,000 in 2008 and $2,500 in 2009. Thereafter, free cash flow for Hart Enterprises is expected to grow at an annual rate of 4%. Hart Enterprises has a weighted average cost of capital (WACC) of 11%. Hart Enterprises Notes Payable plus Long-term Debt equal to $10,000 and no Preferred Stock. Hart Enterprises has 5,000 shares of common stock outstanding. What is the total value of Hart Enterprises (V company)? Free Cash Flows (FCF): 2007 - $1500; 2008 - $2000; 2009 - $2500 Perpetual Growth Rate = g = 4% Expected FCF in 2010 = 2500 x 1.04 = $ 2600 WACC = 11% 1500/(1.11) + 2000/(1.11)^(2) + 2500 / ((1.11)^(3) + [2600/(0.11 -0.04)] [1/(1.11)^(3)] = $ 31961.11 Debt = $ 10000 Equity Value = 31961.11 - 10000 = $ 21961.11 Number of Shares Outstanding = 5000 Therefore, Price per Share = 21961.11/5000 = $ 4.392 The enterprise value will increase as the WACC and Enterprise Values are inversely related if the WACC goes down to 10%