Reference no: EM132653322

Sonic Briefs had a free cash flow for FY 2019 of $3,250 (all amounts are in $000). Foggy Anderson, CEO, has developed a long-term annual free cash flow projection - a copy of which has been reproduced in the table below.

	FY2020-FY2024	FY2025-FY2027	FY2028 to perpetuity
Growth rate	4%	2.5%	1%
Cost of Capital	5.25%	6.20%	4.75%

Question 1: Considering this forecast he asked his CFO (you) to determine the company's valuation using the NPV (net present value) method. Choose the best answer from the list of options below.

For this question consider FY2020 as Year 1 and FY2024 as Year 5, and FY2027 as year 8. (NOTE THAT EXCEL WAS USED TO CALCULATE THE ANSWER TO THIS PROBLEM)

Group of answer choices

[A] $24,239 m

[B] $77,703 m

[C] $98,375 m

[D] $75,138 m

[E] $109,781 m

Question 2: In FY2018, $800 in accounting income (revenues - expenses) was produced form a $10,000 capital investment. If the cost of capital for the firm is 6% then the economic profits produced by this investment were:

Group of answer choices

[A] $800

[B] $700

[C] $600

[D] $400

[E] $200

[F] $100

[G] No economic profits were produced.