A negative FAN Indicates that retained earnings and spontaneous liableness are far more than sufficient to finance the additional assets needed. Question 3 A company forecasts the free cash flows (in millions) shown below. The weighted average cost of capital is 1 3%, and the Offs are expected to continue growing at a 5% rate after Year 3.

Assuming that the ROCCO is expected to remain constant In Year 3 and beyond. What Is the Year O value of operations, In millions? Year: 123 Free cash flow:0$15 $10 $40 $386 Question 4 Based on the corporate valuation model, Bernice Inc. ‘s value of operations is $750 1 OFF unrelated to operations, $100 million of accounts payable, $100 million of notes payable, $200 million of long-term debt, $40 million of common stock (par plus paid- in-capital), and $160 million of retained earnings.

What is the best estimate for the firm’s value of equity, in millions? Answer $500 Question 5 Based on the corporate valuation model, the value of a company’s operations is $900 million. Its balance sheet shows $70 million in accounts receivable, $50 million n inventory, $30 million in short-term investments that are unrelated to operations, $20 million in accounts payable, $110 million in notes payable, $90 million in long- term debt, $20 million in preferred stock, $140 million in retained earnings, and $280 million in total common equity.

If the company has 25 million shares of stock outstanding, what is the best estimate of the stock’s price per share? Answer $28. 40 Question 6 Leak Inc. Forecasts the free cash flows (in millions) shown below. If the weighted average cost of capital is 11% and FCC is expected to grow at a rate of 5% after Year 2, hat is the Year O value of operations, in millions? Assume that the ROCCO is expected to remain constant in Year 2 and beyond (and do not make any half-year adjustments).

Year: 1 2 Free cash flow:0$50 $100 $1 ,456 Question 7 Suppose Leonard, Nixon, & Shall Corporation’s projected free cash flow for next year is $100,000, and FCC is expected to grow at a constant rate of 6%. If the company’s weighted average cost of capital is 11%, what is the value of its operations? Answer Which of the following does NOT always increase a company’s market value? Increasing the expected growth rate of sales. Question 9 Cadenza Inc. Forecasts that its free cash flow in the coming year, I. E. At t = 1, will be 0$10 million, but its FCC at t = 2 will be $20 million. After Year 2, FCC is expected to grow at a constant rate of 4% forever. If the weighted average cost of capital is 14%, what is the firm’s value of operations, in millions?