Question

Gupta corporation is undergoing a restructuring, and its free cash flows are expected to vary considerably during the next few years. however, the fcf is expected to be $65.00 million in year 5, and the fcf growth rate is expected to be a constant 6.5% beyond that point. the weighted average cost of capital is 12.0%. what is the horizon (or continuing) value (in millions) at t = 5?

Answer 1

First, you have to multiply Fcf by the growth rate.
solution:
FCF = 65x1.065
=69.22

Then, you will divide the answer by the difference of 0.12 and 0.065. These are the growth rates and the average cost of capital.
V5 = 69.22/(0.12-.065)
=1258.54

The answer is $1258.54 million in 5 years.