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Start with the partial model in the file Ch21 P08 Build a Model.xlsx on the...

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Finance

Start with the partial model in the file Ch21 P08 Build a Model.xlsx on the textbooks Web site. Kasperov Corporation has an unlevered cost of equity of 12% and is taxed at a 40% rate. The 4-year forecasts of free cash flow and interest expenses are shown in the following table; free cash flow and interest expenses are expected to grow at a 5% rate after Year 4. Using the compressed APV model, answer the following questions.
INPUTS (In millions) Projected
Year 1 2 3 4
Free cash flow $200.0 $280.0 $320.0 $340.0
Interest expense $100.0 $120.0 $120.0 $140.0
Long-term growth rate 5%
Tax rate 40%
Unlevered cost of equity 12.00%

a. Calculate the estimated horizon value of unlevered operations at Year 4 (i.e., immediately after the Year-4 free cash flow).
Current Projected
1 2 3 4
Free cash flow $200.0 $280.0 $320.0 $340.0
Horizon unlevered value of operations

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