Taggart Transcontinental is considering adding a trucking division to expand the

Question

Taggart Transcontinental is considering adding a trucking division to expand the coverage of its existing rail lines. The trucking division will cost $1,000,000 and is expected to generate free cash flows of $100,000 for each of the next five years. Taggart Transcontinental forecasts that future free cash flows after year 5 will grow at 2% per year, forever. Taggart Transcontinental's cost of capital is 10%. The continuation value for the trucking division at the end of year five is closest to: Question 10 options: A) 1,375,000 B) 1,275,000 C) 1,000,000 D) 1,250,000

Explanation / Answer

ANS;

B) C

Justification;

= $1,000,000= 10%* 2%

1,275,000

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