Question: Problem # 5 : You forecast that year 1 unlevered cash flows for a firm are expected to be $ 8 5 . 2 million.

Problem #5: You forecast that year 1 unlevered cash flows for a firm are expected to be $85.2 million. You expect those cash flows to grow at some high growth rate gh for 10 years (so the cash flows for years 2 through 10 are each (1+ gh) times as large as the prior year. Starting in year 11, you expect growth to slow to a permanent annual growth rate of 2.2%. Thus, the year 11 cash flow will be 2.2% larger than year 10, the year 12 cash flow will be 2.2% larger than year 11, and so on. The firm uses no debt and its cost of capital is 6.5%. If the current enterprise value of the firm is $2.359 billion, what is gh?

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