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What is the present value of the company today

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You are running a hot Internet company. Analysts predict that its earnings will grow at 40% per year for the next three years. Your company has just announced earnings of $2 million for the current year.

a. What is the present value of future earnings for the next three years if the interest rate is 8%? (Assume all cash flows occur at the end of the year.)

b. As competition increases, after the third year, earnings growth is expected to slow to 5% per year and continue at that level forever. The interest rate remains the same. What is the value of the company in three year. (Hint: first perpetuity payment occurs in year 4)

c. What is the present value of the company today?

Reference no: EM132788223

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