The free cash flows (in millions)shown below are forecast by Simmons Inc.If the weighted average cost of capital is 13% and the free cash flows are expected to continue growing at the same rate after Year 3 as from Year 2 to Year 3, what is the Year 0 value of operations, in millions?

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WACC: 13%
First, find the growth rate: g = $45/$42 - 1.0 = 7.14%
Second, find the horizon, or terminal, value, at Year 2:
HV? = FCF?/(WACC - g)= $45/(0.13 - 0.0714)= $768
Now find the PV of the FCFs and the horizon value:
Value of operations = -$20/(1.13)+ ($42 + $768)/(1.13)² = $617

The Free Cash Flows (In Millions)shown Below Are Forecast by Simmons