Cash flows are expected to grow at constant rate

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Reference no: EM131523287

Personal Finance Problem

You are evaluating the potential purchase of a small business currently generating $47,500 of after-tax cash flow(Upper D 0D0equals=$47,500). On the basis of a review of similar-risk investment opportunities, you must earn a rate of return of 15% on the proposed purchase. Because you are relatively uncertain about future cash flows, you decide to estimate the firm's value using two possible assumptions about the growth rate of cash flows.

a. The firm's value if cash flows are expected to grow at an annual rate of 0% from now to infinity is

b. The firm's value if cash flows are expected to grow at a constant rate of 9% from now to infinity

c. The firm's value if cash flows are expected to grow at an annual rate of 13% for the first 2 years, followed by a constant annual rate of 9% from year 3 to infinity is

Reference no: EM131523287

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