Answer:
Horizon value = $883
so correct option is e. $883
Explanation:
given data
FCF is expected = $50 million
time = 5 year
CF growth rate = 6% = 0.06
average cost of capital = 12% = 0.12
to find out
the horizon value
solution
we know that FCF at year 6 is here
FCF at year 6 = principal ( 1 + rate )
FCF at year 6 = 50 × (1 + 6%)
FCF at year 6 = 53 million
and
Horizon value will be here
Horizon value = [tex]\frac{FCF at year 6}{required rate- growth rate}[/tex]
Horizon value = [tex]\frac{53}{0.12-0.06}[/tex]
Horizon value = 883.33
Horizon value = $883
so correct option is e. $883
