Question

Suppose a venture's first cash flow is expected in Year 6, and the cash flow is expected to be 3,891,326. A comparable firm has earnings of 31,104,064 and a market cap of 412,501,981. Assuming a discount rate of 15%, find the present value (at Year 0) of the firm in do

Answer 1

Sol:

Expected cash flow = $3,891,326

Discount rate = 15%

Number of periods = 6 years

To find present value (at Year 0) of the firm cash flows in Dollars.

Present Value = Expected cash flow / (1 + Discount rate)^Number of Periods

Present Value = 3,891,326 / (1 + 15%)^6

Present Value = 3,891,326 / (1.15)^6

Present Value = 3,891,326 / 2.3131

Present Value = $1,682,327.61

Therefore present value (at Year 0) of the firm cash flows will be $1,682,327.61