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8 July, 22:13

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?

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  1. 9 July, 02:12
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    The expected year-end free cash flow is $2.44 million

    Explanation:

    The formula to compute free cash flow is shown below:

    Value of operations = (free cash flow) : (weighted average cost of capital - growth rate)

    $57.50 million = free cash flow : (10.25% - 6.00%)

    $57.50 million = free cash flow : 4.25%

    So, free cash flow equal to

    = $2.44 million

    The growth rate should always be deducted from the weighted average cost of capital in computing the year ending free cash flow.
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