JenBritt Incorporated had a free cash flow (FCF) of $92 million in 2019. The firm projects...

JenBritt Incorporated had a free cash flow (FCF) of $92 million in 2019. The firm projects FCF of $220 million in 2020 and $560 million in 2021. FCF is expected to grow at a constant rate of 6% in 2022 and thereafter. The weighted average cost of capital is 8%. What is the current (i.e., beginning of 2020) value of operations? Do not round intermediate calculations. Enter your answer in millions. For example, an answer of $1 million should be entered as 1, not 1,000,000. Round your answer to two decimal places.

Expert Solution

Year		Dividend	PV factor @8%, 1/(1+r)^time	Dividend * PV factor
1		$ 220.00	0.9259	$ 203.70
2		$ 560.00	0.8573	$ 480.11
2		$ 29,680.00	0.8573	$ 25,445.82
			Current value of operations	$ 26,129.63

FCF	$ 560.00
Rate of return	8.00%
Growth Rate	6.00%

Value of operations at the end of 2021	=Current FCF*(1+Growth rate)/(Rate of return-Growth Rate)
Value of operations at the end of 2021	=560*(1+0.06)/(0.08-0.06)
Value of operations at the end of 2021	$ 29,680.00

jeff jeffy answered 1 year ago

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