Question

First find out horizon value, P3 = FCF₄/(rs-g) = FCF3*1.06/(rs-g) = 20*1.06/(0.10-0.06) =530. Register CFs as CF0 =0; C01 = -10, F01 = 1; C02 = 10, F01 = 1; C03 = 20 + 530 =550, F01 = 1; With discount rate I = rs =10, NPV = 412.40. What is the horizon value (P3) in this case?

1) 530
2) 550
3) 412.40

Answer 1

The horizon value (P3) in this case is 550.

Step-by-step explanation:

The horizon value (P3) in this case is 550.