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    Current Value and Horizon Value

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    Suppose a company's most recent free cash flow (i.e., yesterday's free cash flow) was $100 million and is expected to grow at a constant rate of 5 percent. If the company's weighted average cost of capital is 15 percent, what is the current value of operations?

    a. $ 913 million
    b. $1,000 million
    c. $1,050 million
    d. $1,500 million
    e. $2,000 million

    14. A company forecasts free cash flow of $50 million in five years. It expects the free cash flow to grow at a constant rate of 6 percent thereafter. If the weighted average cost of capital is 12 percent, what is the horizon value, to the nearest million?

    a. $53 million
    b. $501 million
    c. $600 million
    d. $833 million
    e. $883 million

    © BrainMass Inc. brainmass.com March 4, 2021, 6:22 pm ad1c9bdddf
    https://brainmass.com/business/accounting/current-value-and-horizon-value-42438

    Solution Preview

    1. The value today is found by the following formula
    Cash Flow * (1+growth Rate)/ (Discount ...

    Solution Summary

    The solution explains how to calculate the current value of operations and the horizon value given the free cash flows

    $2.49

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