In: Finance
Ben is thinking about buying a 10% stake in a small engineering firm and he wants to know how much he is willing to pay, so he has hired you to help him value the business using on a discounted cash flow basis.
Revenues at the firm were $1.1M last year and expenses were $0.9M. Ben expects revenues to grow by $100K per year for the next three years and then remain constant. He expects expenses to rise, too, but by only $50K per year (and then level off).
Draw a graph estimating the net present value of the firm Ben is thinking about purchasing, as a function of discount rate. Include sample calculations.
A sample calculation shown above considering discount rate as 10%.
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Graph Base:
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Graph estimating the net present value of the firm as a function of discount rate
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