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Zhdanov Inc. forecasts that its free cash flow in the coming year, i.e., at t =...

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Finance

Zhdanov Inc. forecasts that its free cash flow in the comingyear, i.e., at t = 1, will be -$10 million, but its FCF at t = 2will be $10 million. After Year 2, FCF is expected to grow at aconstant rate of 5% forever. If the weighted average cost ofcapital is 15%, what is the firm’s value of operations, inmillions?

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Step1 Calculation of the Horizon Value HV Free Cash Flow in Year 2 FCF2 10 Million Growth Rate after 2nd Years g 5 per year Weighted Average Cost of Capital    See Answer
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Zhdanov Inc. forecasts that its free cash flow in the comingyear, i.e., at t = 1, will be -$10 million, but its FCF at t = 2will be $10 million. After Year 2, FCF is expected to grow at aconstant rate of 5% forever. If the weighted average cost ofcapital is 15%, what is the firm’s value of operations, inmillions?

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