The following table shows projected free cash flows for the next three years for Care4UMed Corp., a company producing portable oxygen machines. Year 1 2 3 After the three year period, Care4UMed is expected to grow at a constant rate of 7% and its WACC is 13%. Care4UMed has $35 million of debt and $120 million shares of stock outstanding. According to the video, what is the formula for Care4U Med's horizon value? O HV3 = OHV3 = Free Cash Flow (Millions of dollars) 16.00 17.12 18.32 FCFA WACC-8 O HVA FCFS X (1+g) O HV3 = O Vo = Care4UMed's horizon value is O Vo = FCFA 1+WACC Vo = According to the video, what is the formula for the firm's value today? FCF FCF₁ (1+WACC)¹ FCF₂ (1+WACC)2 (1+WACC)³ O Vo = FCF (WACC-g)³ FCF1 (1+WACC) HV3 (1+WACC) FCF₁ (1+WACC)¹ + + + Care4UMed's value today is million. FCF₂ FCF (1+WACC)2 (1+WACC)³ FCF₂ (1+WACC)² + FCF (1+WACC)³ million. + HV3 + + HV₁ (1+WACC) HV₂ (1+WACC)³

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Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Care4UMed's equity is
Care4UMed's the price per share is
million.
Transcribed Image Text:Care4UMed's equity is Care4UMed's the price per share is million.
The following table shows projected free cash flows for the next three years for Care4UMed Corp., a company producing portable oxygen
machines.
Year
1
2
3
After the three year period, Care4UMed is expected to grow at a constant rate of 7% and its WACC is 13%. Care4UMed has $35 million
of debt and $120 million shares of stock outstanding.
According to the video, what is the formula for Care4U Med's horizon value?
O HV3 =
Free Cash Flow
(Millions of dollars)
16.00
17.12
18.32
O HV3 =
O HV3 =
FCF4
WACC-g
O HV4 FCFS X (1+g)
FCF3
(WACC-g)³
O Vo
Care4UMed's horizon value is
O Vo =
O Vo =
FCFA
1+WACC
O Vo =
According to the video, what is the formula for the firm's value today?
FCF
(1+WACC)
FCF1
(1+WACC)
HV3
(1+WACC)
FCF₁
(1+WACC)¹
+
+
+
Care4UMed's value today is
FCF₁
FCF₂
(1+WACC)² (1+WACC)³
FCF2
(1+WACC)²
million.
FCF₂
(1+WACC)²
+
FCF3
(1+WACC)³
FCF3
(1+WACC)³
million.
+ HV3
+
HV3
(1+WACC)4
HV₁
(1+WACC)³
Transcribed Image Text:The following table shows projected free cash flows for the next three years for Care4UMed Corp., a company producing portable oxygen machines. Year 1 2 3 After the three year period, Care4UMed is expected to grow at a constant rate of 7% and its WACC is 13%. Care4UMed has $35 million of debt and $120 million shares of stock outstanding. According to the video, what is the formula for Care4U Med's horizon value? O HV3 = Free Cash Flow (Millions of dollars) 16.00 17.12 18.32 O HV3 = O HV3 = FCF4 WACC-g O HV4 FCFS X (1+g) FCF3 (WACC-g)³ O Vo Care4UMed's horizon value is O Vo = O Vo = FCFA 1+WACC O Vo = According to the video, what is the formula for the firm's value today? FCF (1+WACC) FCF1 (1+WACC) HV3 (1+WACC) FCF₁ (1+WACC)¹ + + + Care4UMed's value today is FCF₁ FCF₂ (1+WACC)² (1+WACC)³ FCF2 (1+WACC)² million. FCF₂ (1+WACC)² + FCF3 (1+WACC)³ FCF3 (1+WACC)³ million. + HV3 + HV3 (1+WACC)4 HV₁ (1+WACC)³
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