Use the Following Information to Answer the Question(s)below

question 42

Multiple Choice

Use the following information to answer the question(s) below.
Taggart Transcontinental is considering adding a trucking division to expand the coverage of its existing rail lines.The trucking division will cost $1,000,000 and is expected to generate free cash flows of $100,000 for each of the next five years.Taggart Transcontinental forecasts that future free cash flows after year 5 will grow at 2% per year,forever.Taggart Transcontinental's cost of capital is 10%.
-The continuation value for the trucking division in year five is closest to:

• A)$1,000,000.
• B)$1,250,000.
• C)$1,275,000.
• D)$1,375,000.

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