Reizenstein Technologies (RT) has just developed a solar panel capable of generating 200% more electricity than any
Question:
Reizenstein Technologies (RT) has just developed a solar panel capable of generating 200% more electricity than any solar panel currently on the market. As a result, RT is expected to experience a 15% annual growth rate for the next 5 years. By the end of 5 years, other firms will have developed comparable technology, and RT’s growth rate will slow to 5% per year indefinitely. RT has a 12% weighted average cost of capital. The most recent annual free cash flow (FCF0 ) was $1.75 million.
a. Calculate RT’s expected FCFs for t = 1, t = 2, t = 3, t = 4, and t = 5.
b. What is the horizon value at t = 5 (HV5)?
c. What is the present value of the horizon value?
d. What is the present value of the free cash flows expected at t = 1, t = 2, t = 3, t = 4, and t = 5?
e. What is the value of operations at t = 0?
Step by Step Answer:
Intermediate Financial Management
ISBN: 9780357516669
14th Edition
Authors: Eugene F Brigham, Phillip R Daves