If expected long-term growth is constant, the firm's horizon value at period H is given by PVH = (FCF_H ₊ ₁)/(WACC - g).

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Quizplus · Accepted Answer

This statement is true. The horizon value formula assumes constant long-term growth and calculates the present value of all cash flows beyond the projection horizon (period H) using the perpetuity formula, where the cash flows are assumed to grow at a constant rate equal to the expected long-term growth rate. The formula includes the expected free cash flows at period H, the expected residual value at period H (i.e., the value of the firm's assets after subtracting its liabilities and considering the growth rate), and the weighted average cost of capital (WACC) minus the long-term growth rate (g).

If Expected Long-Term Growth Is Constant, the Firm's Horizon Value