Murdock Corporation is undergoing a restructuring, and its free cash flows are e

Question

Murdock Corporation is undergoing a restructuring, and its free cash flows are expected to be unstable during the next few years. However, FCF is expected to be $50 million in Year 5, i.e., FCF at t = 5 equals $50 million, and the FCF growth rate is expected to be constant at 6% beyond that point. If the weighted average cost of capital is 12%, what is the horizon value (in millions) at t = 5?

Clearly identify your answer: The horizon value is ______. Round your answers to 2 decimal places. $X,XXX.XX . Show your work.

Explanation / Answer

Hi,

Please find the answer as follows:

Horizon Value = FCF at Year 5/(r - g) = 50/(.12 - .06) = 833.33 million

Thanks.

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