Answer:
$461.38
Explanation:
Calculation to determine the firm’s total corporate value, in millions
First step is to find the growth rate
Using this formula
g = FCF3/FCF2 - 1
Let plug in the formula
g=($50.50/$48.00)-1
g=1.05208333-1
g= 5.208333%
Second step is to calculate the horizon or value at Year 2
Using this formula
Year 2 Horizon value = FCF3/(WACC – g)
Let plug in the formula
Year 2 Horizon value (HV2)=$50.50/(14%-5.208333%)
Year 2 Horizon value=$50.50/8.791667%
Year 2 Horizon value= $574.41
Now let calculate the Total corporate value using this formula
Total corporate value = FCF1/(1.14) +(FCF2 + HV2)/(1.14)^2
Let plug in the formula
Total corporate value=-$20/(1+.14)+($48+$574.39)/(1+.14)^2
Total corporate value=-$20/(1.14)+($48+$574.39)/(1.14)^2
Total corporate value=-$17.54+($622.41)/(1.14)^2
Total corporate value=-$17.54+$478.92
Total corporate value= $461.38
Therefore the firm’s total corporate value, in millions is $461.38