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    Value of operations

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    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.

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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 ...

    Solution Summary

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

    $2.49

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