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Home Q & A Board Other Fields Homework Help Business Finance
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LilyGal LilyGal
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Posts: 501
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4 years ago
Net Income60,000
+ Depreciation+6,000
- Capital Expenditures-7,000
- Increases in Working Capital -2,000
= Free Cash Flow 57,000

Vega Music's projected net income and free cash flows are given above in thousands of dollars. Vega expects that their net income and increases in net working capital to increase by 5% per year. If Vega were able to reduce its annual increase in working capital by 10% without affecting any other part of the business adversely, what would be the effect of this reduction on Vega's value, given a cost of capital of 13%?

▸ an increase of $2,500,000

▸ an increase of $1,370,000

▸ an increase of $500,000

▸ an increase of $3,800,000
Textbook 
Fundamentals of Corporate Finance

Fundamentals of Corporate Finance


Edition: 2nd
Authors:
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wrote...
#1
4 years ago
an increase of $2,500,000
LilyGal Author
wrote...
#2
4 years ago
Thanks
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