Study Questions
Value of Operations of Constant Growth Firm
EMC Corporation has never paid a dividend. Its current free cash flow of $400,000 is expected to grow at a constant rate of 5%. The weighted average cost of capital is WACC = 12%. Calculate EMC’s value of operations. (133)
Horizon Value
Current and projected free cash flows for Radell Global Operations are shown below. Growth is expected to be constant after 2012, and the weighted average cost of capital is 11%. What is the horizon (continuing) value at 2012?
 Actual  Projected 
 2010  2011  2012  2013 

Free cash flow (millions of dollars) $606.82 $667.50 $707.55 $750.00
EROIC and MVA of Constant Growth Firm
A company has capital of $200 million. It has an EROIC of 9%, forecasted constant growth of 5%, and a WACC of 10%. What is its value of operations? What is its intrinsic MVA? (Hint: Use Equation 135.) (135)
Value Drivers and Horizon Value of Constant Growth Firm
You are given the following forecasted information for the year 2014: sales = $300,000,000, operating profitability (OP) = 6%, capital requirements (CR) = 43%, growth (g) = 5%, and the weighted average cost of capital (WACC) = 9.8%. If these values remain constant, what is the horizon value (i.e., the 2014 value of operations)? (Hint: Use Equation 134.)
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