What is the highest level of initial investment

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You are determining whether to purchase another company or firm for $500,000. The firm has projected free cash flows of $30,000 for Year 1, $50,000 for Year 2, and 80,000 for Year 3, $120,000 for Year 4, and 170,000 for Year 5. The projected terminal value at the end of Year 5 is $295,000. The firm's Weighted Average cost of Capital (WACC) is 10.0%.

Problem 1: Explain what is the highest level of initial investment, instead of the $500,000, you would make to purchase each company? Why? Give a complete explanation of the highest dollar amount you would be willing to invest for these returns.

 

Reference no: EM132985602

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