Value of operations
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H Corp is a growing company. Analysts project the following free cash flow during the next 2 years, after which FCFs are expected to grow at a constant 5% rate. H Corp cost of capital is WACC = 10 %.
Time 1 2 3
FCF 50 75
a. What is the terminal or horizon value at year 2?
b. What is the current value of operations for H Corp?
c. Suppose that H Corp has $100 million in marketable securities, $200 million in debt, and 20 million shares. What is the price per share?
d. If the WACC were to increase to 15%, what would happen to the value of the firm and why? DO NOT RECALCULATE THE VALUE.
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Solution Summary
The solution explains how to calculate the horizon value, value of operations and the price per share.
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H Corp is a growing company. Analysts project the following free cash flow during the next 2 years, after which FCFs are expected to grow at a constant 5% rate. H Corp cost of capital is WACC = 10 %.
Time 1 2 3
FCF 50 75
a. What is the terminal or horizon value at year 2?
Since the FCFs grow at a constant rate after year 2 we use the constant growth formula to find the terminal value in year ...
Purchase this Solution
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