Answer:
Firm's value of operations = $2,100 million
Explanation:
Using the growth model we have
Free cash flow at t=1 = $150 million + 5% expected growth = $157.5 million
Weighted average cost of capital = 12.5%
Therefore with growth rate = 5%
We have present value of firm's operations = [tex]\frac{157.5 million}{0.125 - 0.05}[/tex] = [tex]\frac{157.5 million}{0.075} = $2,100 million[/tex]
Firm's value of operations = $2,100 million
