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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
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