Horizon Value of Free Cash Flows Current and projected free cash flows for Radel

Question

Horizon Value of Free Cash Flows Current and projected free cash flows for Radell Global Operations are shown below. Actual Projected 2016 2017 2018 2019 $603.08 $663.76 $703.81 $746.04 Free cash flow (millions of dollars) Growth is expected to be constant after 2018, and the weighted average cost of capital is 10.85%. What is the horizon (continuing) value at 2019 if growth from 2018 remains constant? Round your answer to the nearest dollar. Round intermediate calculations to two decimal places

Explanation / Answer

growth rate = 746.04/703.81 - 1 = 6.00%

horizon value at 2019 = 746.04 * 1.06/(0.1085 - 0.06) = 16,305.20

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