Evaluating the potential purchase of small business

Assignment Help Financial Management

Reference no: EM131535455

You are evaluating the potential purchase of a small business currently generating $44,000 if after-tax cash flow (D0= $44000). On the basis of a review of similar-risk investment opportunities, you must earn a rate of return of 21% on the proposed purchase. Because you are relatively uncertain about future cash flows, you decide to estimate the firms value using two possible assumptions about the growth rate of cash flows.

a) The firms cash value if cash flows are expected to grow at an annual rate of 0% from not to infinity is?

b) The firms value if cash flows are expected to grow at a constant rate of 6% from now to infinity is?

c) The firms value if cash flows are expected to grow at an annual rate of 9% for the first two years, followed by a constant annual rate of 6% from year 3 to inifinity is?

Reference no: EM131535455

Questions Cloud

Bond using an assumption of semiannual payments : Compute the current price of the bond using an assumption of semiannual payments.

What is profitability index of the project : Company XYZ has spent $250,000 to develop a new product – smart beehive. What is the profitability index of the project?

What will be the effective purchasing power : When the firm repays the original $6,500,000 loan this year, what will be the effective purchasing power of the $6,500,000?

What should be initial price of the bond : A 17-year, $1,000 par value zero-coupon rate bond is to be issued to yield 7 percent. What should be the initial price of the bond? Bond Price:

Evaluating the potential purchase of small business : You are evaluating the potential purchase of a small business currently generating $44,000 if after-tax cash flow (D0= $44000).

Considering cash purchase of stock of grips tool : Newman manufactuing is considering a cash purchase of stock of Grips Tool.

Mathematical interest theory : Find the purchase price. Divide rhe 4th coupon into interest and premium adjustment.

The firm required net working capital : The machine will also immediately lower the firm’s required net working capital by $95,000.

Book value versus market value : What are the company’s capital structure weights on a market value basis? Which are more relevant, the book or market value weights? Why??

User Account

All Pages