Simonyan inc. forecasts a free cash flow of $40 million in year 3, i. e., at t = 3, and it expects fcf to grow at a constant rate of 5% thereafter. if the weighted average cost of capital is 10% and the cost of equity is 15%, what is the horizon value, in millions at t = 3?

$840 million

Explanation:

Given that,

Free cash flow = $40 million in Year 3

at  t = 3,

FCF to grow at a constant rate = 5%

Weighted average cost of capital (W) = 10%

Cost of equity (C) = 15%

Horizon Value at t = 3,

= Free Cash flow  ×

= 40 ×  

= 40 ×  

= $840 million

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