Question 2

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Lancaster Enterprises has never paid a dividend. Free cash flow (FCF) is projected to be $10,000 next year (Year 1 of the plan period); after-which, FCF is expected to grow at a constant rate of 10% annually. The company's weighted average cost of capital (WACC) is 12%.

Using the discounted cash flow model (DCF), calculate the value of Lancasters operations. Assume a five year horizon (i.e. Year 1 through Year 5).

You Answered

$475,000

Correct Answer

$500,000

$350,000

$625,000

Can anyone show me how to get the correct answer of 500,000?