Gupta Corporation Is Undergoing a Restructuring,and Its Free Cash Flows

question 9

Multiple Choice

Gupta Corporation is undergoing a restructuring,and its free cash flows are expected to vary considerably during the next few years.However,the FCF is expected to be $25.00 million in Year 5,and the FCF growth rate is expected to be a constant 6.5% beyond that point.The weighted average cost of capital is 12.0%.What is the horizon (or continuing) value (in millions) at t = 5?

• A) $387
• B) $421
• C) $562
• D) $484
• E) $402

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Definitions:

Nominal Interest Rate

The percentage increase in money that the borrower pays the lender, not adjusting for inflation.

Inflation Rate

The percentage rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling, over a given period of time.

Purchasing Power

the value of currency expressed in terms of the amount of goods or services that one unit of money can buy.

Inflation

The rate at which the general level of prices for goods and services rises, eroding purchasing power.