Kinkead Inc.forecasts that its free cash flow in the coming year,i.e.,at t = 1,will be -$10 million,but its FCF at t = 2 will be $20 million.After Year 2,FCF is expected to grow at a constant rate of 4% forever.If the weighted average cost of capital is 14%,what is the firm's value of operations,in millions?

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$\begin{array}{lr} \mathrm{FCF}_{1} & -\$ 10 \ \mathrm{FCF}_{2} & \$ 20 \ \mathrm{~g} & 4 \% \ \mathrm{WACC} & 14 \% \end{array}$ First,find the horizon,or terminal,value: HV₂ = FCF₂(1 + g)/(WACC- g)= $20(1.04)/(0.14 - 0.04)= $20.8/0.10 = $208.00 Then find the PV of the free cash flows and the horizon value: Value of operations $ \begin{array}{l} =-\$ 10 /(1.14)^{1}+(\$ 20+\$ 208) /(1.14)^{2} \ =-\$ 8772+\$ 175439=\$ 167 \end{array} $