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tiny-mole [99]
2 years ago
6

A company forecasts growth of 6 percent for the next five years and 3 percent thereafter. Given last year's free cash flow was $

100, what is its horizon value (PV looking forward from year 4) if the company cost of capital is 8 percent?
a. $0
b. $1,672
c. $2,000
d. $2,676
Business
1 answer:
Ilya [14]2 years ago
4 0

Answer:

d. $2,676

Explanation:

The computation of the horizontal value is shown below:

FCF1 = (100 × 1.06) = 106

FCF2  = (106 × 1.06) = 112.36

FCF3 = (112.36 × 1.06) = 119.1016

FCF4  = (119.1016 × 1.06) = 126.247696

FCF5  = (126.247696 × 1.06) = 133.8225578

Now

Horizon value is

= FCF5 ÷ (Cost of capital  - Growth rate)

= 133.8225578 ÷ (0.08  - 0.03)

= $2,676

Hence, the correct option is d.

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Industry classifications often use a company's or group's major source of revenue when evaluating it to place it inside a certain industry. For instance, "statistical units" are categorized by the "economic activity in which they primarily participate" according to the International Standard Industrial Classification (ISIC), which is utilized directly or through derivations for the official statistics of the majority of countries worldwide.

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c. As a result of the ad campaigns,  the price elasticity of demand for Ford's SUVs will decrease. This is because other cars would be considered to be les safe when compared with the Ford SUVs.

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8 0
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[The following information applies to the questions displayed below.]
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Answer:

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Explanation:

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