1) Value of Operations

Jendra Enterprises has never paid a dividend. Free cash flow is projected to be $80,000 and $100,000 for the next 2 years, respectively; after the second year, FCF is expected to grow at a constant rate of 8%. the company’s weighted average cost of capital is 12%

What is the terminal, or horizon, value of operations? (Hint: Find the value of all free cash flows beyond Year 2 discounted back to Year 2.)

Calculate the value of Kendra’s operations.

2) Black-Scholes Model

Assume that you have been given the following information on Purcell industries:

   Current stock price= $15           Strike price of option=$15

   Time to maturity of option=6 months       Risk-free rate= 6%

   Variance of stock return =0.12

   d1=0.24495                   N(d1)= 0.59675

   d2=0.00000                   N(d2)=0.50000

According to the Black-Scholes option pricing model. What is the option’s value?