Cash flow projection firm makes for infinite-lived project

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Suppose the final cash flow projection a firm makes for an infinite-lived project is $4.2 million.

(A) If the firm applies a price-to-cash flow market multiple of 16.5 to the final cash flow projection, what terminal value would the firm be assigning to the project?

(B) This terminal value implies that the final project cash flow is expected to grow at what constant rate forever, assuming the firm’s cost of capital is 14%?

(C) Suppose after further analysis, the firm determines that the final projected cash flow should grow at a constant rate of 4.2% per year. Then, is the terminal value calculated an overestimation or underestimation?

Reference no: EM131829153

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