Ben is thinking about buying a 10% stake in a small engineering firm and he wants...

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.

Solutions

Expert Solution

A sample calculation shown above considering discount rate as 10%.

Workings:

Graph Base:

Workings:

Graph estimating the net present value of the firm as a function of discount rate

Workings:

jeff jeffy answered 1 year ago

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