Calculate the horizon value as of 2024

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The Widget Company forecast free cash flow for the next five years is as follows:

                                   2020   2021   2022   2023   2024

Free cash flows          2,131  2,301  2,463  2,706  2,818

Ms. Stephanie Olsen, CFO reports that the weighted average cost of capital of the company is 13% and that the expected growth rate after 2024 is 4% per year. Given these numbers and assumptions:

a. Calculate the horizon value as of 2024.

b. Calculate the value of Widget as of today.

c. Recalculate the value assuming a cost of capital of 13% and a growth rate of 6%. What effect does increasing or decreasing the growth rate have on value?

d. Recalculate the value assuming a cost of capital of 15% and a growth rate of 4%. What effect does increasing or decreasing the cost of capital have on value?

Reference no: EM132395431

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