Suppose the expected free cash flow for year 1 is $250,000 but it is expected to grow evenly over the next 3 years;FCF2 = $290,000 and FCF3 =

  1. Suppose the expected free cash flow for year 1 is $250,000 but it is expected to grow evenly over the next 3 years;FCF2 = $290,000 and FCF3 = $320,000, after which it will grow at a constant rate of 7%. The expected interest expense at Year 1 is $80,000, but it is expected to grow over the next couple of years before the capital structure becomes constant: Interest expense at Year 2 will be $95,000, at Year 3 it will be $120,000, and it will grow at 7% thereafter. What is the estimated horizon unlevered value of operations (i.e., the value at Year 3 immediately after the FCF at Year 3)? What is the current unlevered value of operations? What is the horizon value of the tax shield at Year 3? What is the current value of the tax shield? What is the current total value? The tax rate and unlevered cost of equity remains at 40% and 14%, respectivel.

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