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A company forecasts the free cash flows (in millions) shown below. The weighted average cost of capital is 12%, and the FCFs are expected to continue growing at a 4% rate after Year 3. Assuming that the ROIC is expected to remain constant in Year 3 and beyond, what is the Year 0 value of operations, in millions? Note that, you must first find the horizon, or terminal, value
Free cash flow: = Yr 1= -$20; Yr 2 = $30 Yr 3 = $50
a. Value of the Operations I Year 0 = ?
b. Explain the relevance of your answer in terms of firm value.
c. Write about the GAAP and accounting principles such as going concern and market
What method did you use to make your estimates in "a" and "b" above? Are there any other possible methods that can be used? If so, state the advantages of each.
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