A firm with no debt and no preferred stock is expected to have free cash flow...

A firm with no debt and no preferred stock is expected to have free cash flow of $76 million each year indefinitely. If investors require a 14% return on their equity, what is the value of the firm's equity?

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Expert Solution

A firm without debt and preference shares have free cash flow of $ 79 million each year indefinitely.

Required return (ke) =14% or 0.14

Value of equity with constant cash flow indefinitely = cash flow /ke

=79/0.14

Value of firm equity =$ 564.29 million

jeff jeffy answered 1 year ago

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