Justus Motor Co.has a WACC of 11.50%, and its value of operations is $25.00 million. Justus's free cash flow is expected to grow at a constant rate of 7.00%. What was the last free cash flow, FCF0 in millions?
A) $0.95
B) $1.05
C) $1.16
D) $1.27
E) $1.40

Question

Quizplus · Accepted Answer

$\begin{array}{lr}
\text { Value of operations } & \$ 25.00 \
\text { Required return } & 11.50 \% \
\text { Growth rate } & 7.00 \% \
\mathrm{~V}_{\text {ops }}=\mathrm{FCF}_{1} /(\mathrm{WACC}-\mathrm{g}), \text { so } \mathrm{FCF}_{1}= & \$ 1.1250 \
\mathrm{~V}_{\text {ops }}(\mathrm{WACC}-\mathrm{g})= & \
\text { Last } \mathrm{FCF}=\mathrm{FCF}_{0}=\mathrm{FCF}_{1} /(1+\mathrm{g}) & \$ 1.05
\end{array}$