Kedia Inc. forecasts a negative free cash flow for the coming year, FC
QUESTION
Kedia Inc. forecasts a negative free cash flow for the coming year, FCF1 = -10 million, but it expects positive numbers thereafter, with FCF2= $14 million. After year 2, FCF is expected to grow at a constant rate of 4% forever. If the weighted average cost of capital is 14.0%, what is the firms value of operations, in millions?
FCF2 = $25,000,000 FCF3 = FCF2(1 g)= FCF3 = $25,000,000(1 .04)= $26,000,000 Terminal value = FCF3/WACC- g TV = $26,000,000/0.14 0.04 =
60,000,000 Firms Value = $25,000,000 $260,000,000/(1 0.14)^2 Firms value = $219,298,245.61
ANSWER:
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