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

Question

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

Growth is expected to be constant after 2015, and the weighted average cost of capital is 11.95%. What is the horizon (continuing) value at 2016 if growth from 2015 remains constant? Round your answer to the nearest dollar. Round intermediate calculations to two decimal places.

$  

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

Actual
2016
2017 Projected
2018
2019 Free cash flow $614.08 $674.76 $714.81 $757.70 (millions of dollars)

Growth is expected to be constant after 2015, and the weighted average cost of capital is 11.95%. What is the horizon (continuing) value at 2016 if growth from 2015 remains constant? Round your answer to the nearest dollar. Round intermediate calculations to two decimal places.

$  

Explanation / Answer

First we need to compute annual growth:

PV= 614.08

FV= 757.70

N= 3

We can use following formula to compute growth:

1+g = (FV/ PV)^(1/n)

1+g = (757.70/ 614.08)^(1/3)

G= 1.0726 -1

G = 7.26%

We can calculated horizon value at 2016 by using 2017 free cash flow.

Horizon value at 2016 = 2017 free cash flow/ (WACC –g)

                                            = 674.76 / (0.1195 – 0.0726)

                                                = 674.76/ 0.0469

                                                = 14,387.21

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