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Q: Take home quiz ( Answered,   1 Comment ) Question
 Subject: Take home quiz Category: Business and Money > Finance Asked by: husenior-ga List Price: \$2.00 Posted: 19 Nov 2006 08:28 PST Expires: 19 Dec 2006 08:28 PST Question ID: 783999
 ```1. Suppose a company?s most recent free cash flow (i.e., yesterday?s free cash flow) was \$100 million and is expected to grow at a constant rate of 5 percent. If the company?s weighted average cost of capital is 15 percent, what is the current value of operations? A. \$ 913 million B. \$1,000 million C. \$1,050 million D. \$1,500 million E. \$2,000 million``` ```HUsenior -- This is an application of the ?constant growth model? in finance, sometimes called the ?dividend valuation model? because returns can be figured on dividends (or cash flows to shareholders) or on core cash flows (how an analyst looks at stock valuations). Pi = CFi / (Ks - g) Pi = price in period i CFi = cash flow in period i Ks = required rate of return (in decimals) g = dividend growth rate (in decimals) i = period, usually expressed in years P(today) = CF (today) / (0.15 ? 0.05) = \$100M / (0.10) = \$1,000 million ? or b (for \$1 billion) Google search strategy: ?constant growth model? dividends ?constant growth model? cash flow Best regards, Omnivorous-GA``` ```That will depend on: 1: How much Capital is employed; and 2: The Sector in which the company operates. Please tell the Quizmaster to get real.``` 