Fin 534 Week 7 Chapter 13 Homework

FIN 534 – Homework Chapter 13 1. Suppose Leonard, Nixon, & Shull Corporation’s projected free cash flow for next year is$100,000, and FCF is expected to grow at a constant rate of 6%. If the company’s weightedaverage cost of capital is 11%, what is the value of its operations?a. $1,714,750b. $1,805,000c. $1,900,000d. $2,000,000e. $2,100,000FCF 1 / (WACC-g) = 100000 / (11%-5%) = $2,000,0002. Leak Inc. forecasts the free cash flows (in millions) shown below. If the weighted average cost of capital is 11% and FCF is expected to grow at a rate of 5% after Year 2, what is the Year 0 value of operations, in millions? Assume that the ROIC is expected to remain constant in Year 2 and beyond (and do not make any half-year adjustments).Year: 1 2Free cash flow: -$50 $100a. $1,456b. $1,529c. $1,606d. $1,686e. $1,770C2 = FCF of year 3 / (WACC - Growth) = 100 * (1+0.05) = 105C2 = 105 / (11%-5%) = 1,750NPV = (50) /