The Widget Company forecast free cash flow for the next five years is as follows:

20202021202220232024

Free cash flows2,1312,3012,4632,7062,818

Ms. Stephanie Olsen, CFO reports that the weighted average cost of capital of the company is 13% and that the expected growth rate after 2024 is 4% per year. Given these numbers and assumptions:

a. Calculate the horizon value as of 2024.

b.Calculate the value of Widget as of today.

c.Recalculate the value assuming a cost of capital of 13% and a growth rate of 6%.

What effect does increasing or decreasing the growth rate have on value?

d.Recalculate the value assuming a cost of capital of 15% and a growth rate of 4%.

What effect does increasing or decreasing the cost of capital have on value?