# Value of operations

Please see attached. Please work out in steps.

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.

https://brainmass.com/business/weighted-average-cost-of-capital/value-operations-255250

#### Solution Preview

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 ...

#### Solution Summary

The solution explains how to calculate the horizon value, value of operations and the price per share.