CFA Practice Question

There are 201 practice questions for this study session.

CFA Practice Question

Consider the following information about a firm:

  • Target debt ratio: 40%.
  • Cost of equity: 0.20.
  • Cost of debt: 9%.
  • Tax rate: 30%.

The FCFF over the next five years and the terminal value of these cash flows at the end of year five are forecasted as shown below:

What is the value of the firm?
A. $2742.96
B. $2813.84
C. $2758.96
Explanation: WACC = 0.20 x 0.6 + 0.09 x (1 - 0.3) x 0.4 = 14.52%.

Value = 100/1.14521 + 300/1.14522 + 400/1.14523 + 450 / 1.14524 + 480/1.14525 + 3400/1.14525 = 2813.84.

User Contributed Comments 2

User Comment
Hishy Watch that it says TV in year FIVE, not six.
sg2006 discounted by wacc
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