Beyond Milk Co. has just invested $100 million into its business and forecasts that Its free cash flow in the coming year, i.e., at t = 1, will be -$50 million, but its FCF at t = 2 will be $25 million. After Year 2, FCF is expected to grow at a constant rate of 5.75% forever. If the weighted average cost of capital is 8.75%, what proportion of the firm's present value of operations is contributed by the horizon value? Year: 0 1 2 Free cash flow: -$100 -$50 25

Essentials Of Investments
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Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
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Chapter1: Investments: Background And Issues
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Beyond Milk Co. has just invested $100 million into its business and forecasts that its free
cash flow in the coming year, i.e., at t = 1, will be -$50 million, but its FCF at t = 2 will be $25
million. After Year 2, FCF is expected to grow at a constant rate of 5.75% forever. If the
weighted average cost of capital is 8.75%, what proportion of the firm's present value of
operations is contributed by the horizon value?
Year:
0
1
2
Free cash flow:
-$100
-$50
25
89.42%
O 120.12%
96.67%
103.45%
83.25%
Transcribed Image Text:Beyond Milk Co. has just invested $100 million into its business and forecasts that its free cash flow in the coming year, i.e., at t = 1, will be -$50 million, but its FCF at t = 2 will be $25 million. After Year 2, FCF is expected to grow at a constant rate of 5.75% forever. If the weighted average cost of capital is 8.75%, what proportion of the firm's present value of operations is contributed by the horizon value? Year: 0 1 2 Free cash flow: -$100 -$50 25 89.42% O 120.12% 96.67% 103.45% 83.25%
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