Question

Hassim's Fireworks & Cycles had free cash flow of R129 550 this year, and expects this to grow by 3% each year for the foreseeable future. The company has a weighted average cost of capital of 8%. What is the value of the company today? 01R 119 186 O2 R 139 914 4. R1 271 945 R2 668 730​

Answer 1

To calculate the value of Hassim's Fireworks & Cycles today, we can use the formula for the present value of a growing perpetuity:

PV = FCF / (r - g)

where PV is the present value, FCF is the free cash flow, r is the weighted average cost of capital, and g is the growth rate.

Substituting the given values, we get:

PV = 129550 / (0.08 - 0.03)

PV = 2591000

Therefore, the value of Hassim's Fireworks & Cycles today is R2,591,000.