Question
An analyst used a pro forma model to forecast $200 of Free Cash Flow in the terminal year, FCFt=$200. If the analysis expects those cash
An analyst used a pro forma model to forecast $200 of Free Cash Flow in the terminal year, FCFt=$200. If the analysis expects those cash flows to continue to grow at 2% forever and the weighted average cost of capital is 10%, what can you say about those cash flows beyond the terminal year?
*Multiple Choice, one answer is correct*
A) They are worth just less than 13 times cash flow in the terminal year
B) They can only decline
C) Not enough information to tell if any of these are true
D) Nothing, because future cash flows must be discounted at a rate higher than their annual growth
E) Their long-term growth rate is exactly 8%
F) Their worth is limitless because they grow forevr
G) They will be flat forever
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