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Solution 12/8/2012
Chapter: 21
Problem: 14
Current
Current value of unlevered operations $4,086.77
Current value of unlevered operations $677.57
Projected
a. Calculate the estimated horizon value of unlevered operations at Year 4 (i.e., immediately after the Year-4 free
cash flow).
Kasperov Corporation has an unlevered cost of equity of 12% and is taxed at a 40% rate. The 4-year forecasts of
free cash flow and interest expenses are shown below. Free cash flow and interest expenses are expected to grow
at a 5% rate starting after Year 4. Answer the following questions.
a. Calculate the estimated horizon value of the tax shield at Year 4 (i.e., immediately after the Year-4 free cash
d. Calculate the current value of the tax shield.
d. Calculate the current total value.
b. Calculate the current value of unlevered operations.
