Analysts Often Value Companies by Forecasting a Series of Cash

question 24

Multiple Choice

Analysts often value companies by forecasting a series of cash flows and then estimating a horizon value. Suppose a firm forecasts a project's net cash flows ($millions) in years 1 through 4 as $120, $130, $135, and $137, respectively. If the project ends at the end of the fourth year, what is the horizon value of the project? Assume that the company had a historical growth rate of 3 percent and has a discount rate of 10 percent.

• A)$0.00
• B)$1.37
• C)$1.96
• D)$4.87

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Definitions:

Therapeutic Intervention

A planned action or process intended to improve health and well-being through medical, counseling, or psychological methods.

Placebos

Substances with no therapeutic effect that are used in clinical trials as a control to test the effectiveness of treatments.

Nocebo Effect

Adverse effect of a placebo.

Negative Effect

An adverse or undesirable outcome resulting from a particular action or condition.