What is horizon value in millions of unlevered operations

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Reference no: EM13946902

Hastings Corporation is interested in acquiring Vandell Corporation. Vandell currently has a cost of equity of 10%; 25% of its financing is in the form of 6% debt, and the rest is in common equity. Its federal-plus-state tax rate is 40%. After the acquisition, Hastings expects Vandell to have the following FCFs and interest payments for the next three years (in millions):

Year1 Year 2 Year 3

FCF $10 $20 $22

Interest expense 28 24 20.28

After this, the free cash flows are expected to grow at a constant rate of 5.4%, and the capital structure will stabilize at 35% debt with an interest rate of 7%. What is the horizon value, in millions, of unlevered operations?

Reference no: EM13946902

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