Question: The second acquisition target is a privately held company in a growing industry. The target has recently borrowed $40 million to finance its expansion; it

The second acquisition target is a privately held company in a growing industry. The target has recently borrowed $40 million to finance its expansion; it has no other debt or preferred stock. It pays no dividends and currently has no marketable securities. KFS expects the company to produce free cash flows of -$5 million in one year, $10 million in two years, and $20 million in three years. After three years, free cash flow will grow at a rate of 6%. Its WACC is 10% and it currently has 10 million shares of stock. What is its horizon value (i.e., its value of operations at year three)? What is its current value of operations (i.e., at time zero)?

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