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Judd Corporation has a weighted average cost of capital of 10.25%, and its value of operations is $57.50 million. Free cash flow is expected to grow at a constant rate of 6.00% per year. What is the expected year-end free cash flow, FCF1 in millions? a. $2.44 b. $2.96 c. $3.25 d. $2.20 e. $2.69

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Answer:

The answer is $2.44 millions option (a) is correct

Explanation:

Solution

Recall that:

Weighted average cost of capital =10.25%

The value of operations = $57.50 million

Constant rate = 6.00%

Now we have to find the expected year-end free cash flow.

Thus

The value of operations = $57.50 million

WACC =10.25%

Growth rate = 6.00%

So

The value of operation = free cash flow/( WACC-growth rate )

$57.50 = free cash flow / 0.1025-0.06

$ 57.50 = free cash flow/0.425

Free cash flow = $ 57.50*0.0425

= $2.44 millions

Hence the expected ear-end free cash flow is $2.44 millions

Answer:

A. $2.44

Explanation:

Hope this helps

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