Sheldon Corporation projects the following free cash flows (FCFs) and interest expenses for the next 3 years, after which FCF and interest expenses are expected to grow at a constant 7% rate. Sheldon's unlevered cost of equity is 13% its tax rate is 40%.
Year 1 2 3
FCF (millions) $20 $30 $40
Interest exp.(millions) $8 $9 $10
b. What is the current unlevered value of operations?
c. What is horizon value of the tax shield at Year 3?