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24 October, 18:45

Suppose Boyson Corporation's projected free cash flow for next year is FCF1 = $100,000, and FCF is expected to grow at a constant rate of 6.5%. Assume the firm has zero non-operating assets. If the company's weighted average cost of capital is 11.5%, then what is the firm's total corporate value?

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  1. 24 October, 20:55
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    The aggregate corporate value of the firm is $2,000,000

    Explanation:

    Given,

    FCF1 = $100,000

    Constant rate (g) = 6.5%

    WACC (Weighted Average Cost of Capital) = 11.5%

    The formula for computing the aggregate corporate value of the firm is as:

    Total corporate value = FCF1 / [Weighted Average Cost of Capital (WACC) - Constant rate (g) ]

    Total corporate value = $100,000 / (11.5% - 6.5%)

    Total corporate value = $100,000 / 5.0%

    Total corporate value = $2,000,000

    Therefore, the aggregate corporate value of the firm amounts to $2,000,000.
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