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d. $2,000,000
e. $2,100,000
2. 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 2
Free cash flow: -$50 $100
a. $1,456
b. $1,529
c. $1,606
d. $1,686
e. $1,770
3. Based on the corporate valuation model, the value of a company’s
operations is $1,200 million. The company’s balance sheet shows $80
million in accounts receivable, $60 million in inventory, and $100
million in short-term investments that are unrelated to operations. The
balance sheet also shows $90 million in accounts payable, $120 million
in notes payable, $300 million in long-term debt, $50 million in
preferred stock, $180 million in retained earnings, and $800 million in