A firm forecasts a project's net cash flows ($millions)in years 1 thru 4 as $120,$130,$135,and $137,respectively.If the project ends at the end of the fourth year,what is the horizon value of the project? Assume that the company had a historical growth rate of 3% and has a discount rate of 10%.
A)$0.00
B)$1.37
C)$1.96
D)$4.87

Question

Quizplus · Accepted Answer

The horizon value (also known as terminal value) is calculated at the end of the forecast period. Since the project ends at the end of the fourth year, there is no continuation of cash flows beyond year 4, making the horizon value $0.00.

A Firm Forecasts a Project's Net Cash Flows ($Millions)in Years