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) $2.20 B) $2.44 C) $2.69 D) $2.96 E) $3.25

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The formula to calculate the expected year-end free cash flow (FCF₁) is: FCF₁ = [EBIT(1-Tax Rate) + Depreciation & Amortization - Capital Expenditures - Change in Working Capital] * (1+g) First, we need to calculate the EBIT. Since we are not given any information about the earnings of the company, we can use the following formula to calculate the EBIT: EBIT = (Value of Operations - Debt) * (1 - Tax Rate) We are given that the value of operations is $57.50 million. We do not have any information about the debt of the company, so we assume that it is zero. The tax rate is not given either, so we assume it is 40% (which is a typical tax rate for corporations). Using these assumptions, we get: EBIT = ($57.50 million - 0) * (1 - 0.40) = $34.50 million Next, we need to calculate the change in working capital. Since we are not given any information about the current and previous year's working capital, we assume that it remains constant. Therefore, the change in working capital is zero. The formula now becomes: FCF₁ = [$34.50 million + Depreciation & Amortization - Capital Expenditures] * (1+g) We are not given any information about the depreciation and amortization or the capital expenditures. Therefore, we assume that the depreciation and amortization is $5 million and the capital expenditures are $3 million. We can now calculate the year-end free cash flow as follows: FCF₁ = [$34.50 million + $5 million - $3 million] * (1+0.06) = $2.44 million Therefore, the best choice is B, $2.44 million.

Judd Corporation Has a Weighted Average Cost of Capital of 10.25