fm15 2 - c. The value of operations is the present value of...

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Answers and Solutions: 15 - 2 c. The value of operations is the present value of all the future free cash flows that are expected from current assets-in-place and the expected growth of assets-in-place when discounted at the weighted average cost of capital: () . WACC 1 FCF V 1 t t t 0) time op(at = + = The terminal, or horizon value, is the value of operations at the end of the explicit forecast period. It is equal to the present value of all free cash flows beyond the forecast period, discounted back to the end of the forecast period at the weighted average cost of capital: . g WACC ) g 1 ( FCF g WACC FCF V N 1 N N) time op(at + = = + The corporate valuation model defines the total value of a company as the value of operations plus the value of nonoperating assets plus the value of growth options. d. Value-based management is the systematic application of the corporate value model to a company’s decisions. The four value drivers are the growth rate in sales (g),
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This note was uploaded on 07/13/2011 for the course FIN 4414 taught by Professor Staff during the Spring '08 term at University of Florida.

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