The present value of expected free cash flows

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Your employer, a mid-sized human resources management co. is considering expansion into related fields, including the acquisition of Co. B. Your employer is also considering the purchase of B&M, a privately held company owned by two friends, each with 5 million shares in stock. B&M currently has free cash flow of $24 million, which is expected to growat a constant rate of 5%. B&M's financial statements report short-term investments of $100 million, debt of $200 million, and preferred stock of $50 million. B&M's weighted average cost of capitall is 11%.

Suppose the free cash flow at Time 1 is expected to grow at a constant rate of g1 forever. If g1<WACC, what is a formula for the present value of expected free cash flows when discounted at the WACC? IF the most recent free cash flow is expected to grow at a constant rate of g1 forever (and g1<WACC), what is a formulat for the present value of expected free cash flows when discounted at the WACC?

Reference no: EM131530136

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