Question
The MoMi Corporation's cash flow from operations before interest and taxes was $5.0 million in the year just ended, and it expects that this will
The MoMi Corporation's cash flow from operations before interest and taxes was $5.0 million in the year just ended, and it expects that this will grow by 5% per year forever. To make this happen, the firm will have to invest an amount equal to 19% of pretax cash flow each year. The tax rate is 35%. Depreciation was $350,000 in the year just ended and is expected to grow at the same rate as the operating cash flow. The appropriate discount rate for the unleveraged cash flow is 8% per year, and the firm currently has debt of $7.0 million outstanding. Use the free cash flow approach to value the firm's equity.
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