Heath and Logan Inc $\begin{array}{lccc}\text { Year: } & 1 & 2&3 \\\hline \text { Free cash flaw: } & -\$ 15& \$ 10& \$ 40\end{array}$

Heath and Logan Inc. forecasts the free cash flows (in millions) shown below. The weighted average cost of capital is 13%, and the FCFs are expected to continue growing at a 5% rate after Year 3. Assuming that the ROIC is expected to remain constant in Year 3 and beyond, what is the Year 0 value of operations, in millions? $\begin{array}{lccc}\text { Year: } & 1 & 2&3 \\\hline \text { Free cash flaw: } & -\$ 15& \$ 10& \$ 40\end{array}$

A) $315
B) $331
C) $348
D) $367
E) $386

Correct Answer:

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