Question

Suppose Boyson Corporation's projected free cash flow for next year is FCF1 = $100,000, and FCF is expected to grow at a constant rate of 6.5%. Assume the firm has zero non-operating assets. If the company's weighted average cost of capital is 11.5%, then what is the firm's total corporate value?

Answer 1

Answer:

The aggregate corporate value of the firm is $2,000,000

Explanation:

Given,

FCF1 = $100,000

Constant rate (g) = 6.5%

WACC (Weighted Average Cost of Capital) = 11.5%

The formula for computing the aggregate corporate value of the firm is as:

Total corporate value = FCF1 / [Weighted Average Cost of Capital (WACC) - Constant rate (g)]

Total corporate value = $100,000 / (11.5% - 6.5%)

Total corporate value = $100,000 / 5.0%

Total corporate value = $2,000,000

Therefore, the aggregate corporate value of the firm amounts to $2,000,000.