A client explains that her firm’s value must be affected by the choice of explicit forecast horizon. Build a model to test her claim. NOPLAT, depreciation, and gross investment for year 1 have been forecasted to be $10.0, $2.5, and $13.61, respectively.

To evaluate your client’s claim, first assume a short horizon of three years. 

Compare the results of this three-year horizon to a five-year forecasted horizon. The company’s management team forecasted ROIC for years 1-3 to be 18 percent and 11 percent after that period.

 The company executives also forecasted NOPLAT to grow at 20 percent for years 1-3 and a decline to continuing growth rate of 7 percent thereafter. Depreciation in year t = 25% of NOPLAT in year t. Finally, the management

Answer rating: 100% (QA)

The clients claim is plausible A shorter forecast horizon will result in a lower NOPLAT and R... View the full answer