Question

Current and projected free cash flows for Radell Global Operations are shown below.

Free cash flow

(millions of dollars)

Actual 2016 $606.82

2017 $667.50

Projected 2018 $707.55

2019 $750.00

Growth is expected to be constant after 2018, and the weighted average cost of capital is 11.45%. What is the horizon value at 2019 if growth from 2018 remains constant?

Answer 1

first let us know the growth rate.

(2019 cash flow - 2018 cash flow) / 2018 cash flow

=> (750 -707.55) / 707.55

=>0.059999576

=>5.9999%.

=>6%.

horizon value = [2019 cash flow (1+growth rate) / (wacc - growth rate)]

=>750*(1.06) / (0.1145-0.06)

=>$14,587.16.