What is the correct firm value

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1. Alex is a new intern in an investment bank. She is trying to value a firm using non-constant growth model. Firm's free cash flow in current year is $10m. FCF will grow by 12%, 10%, and 8% in years 1, 2, and 3, respectively. Alex assumes WACC=10%, uses the wrong formulas and finds that firm value is $108.33m. Alex's manager says the actual WACC of firm should be 12% and want Alex to re-calculate correct firm value. What is the correct firm value?

2. AAPL is trading at $118. You write an AAPL June Call with a strike price of $120.00 for $3.25. What is your maximum gain in dollar amount? What is your maximum loss? The stock rises to $125.00 and you are exercised? What is your gain or loss?

Reference no: EM132059527

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