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If the discount rate is 12% what is thepresent value of the Cash flow generated?

Kamsung is planning to invest in in-house operating system for mobile phones. They have forecasted that with the new operating system the following are the expected cash flows that will be generated -

This project will generate $10million at the end of year 1 which will grow at a rate of 10% for next 3 years from year 1 onwards (1-2, 2-3, 3-4 years). From year 4 onwards, the growth rate in cash flows will stabilize to 3% per year till perpetuity.

If the discount rate is 12% what is thepresent value of the Cash flow generated? 

Solutions

Expert Solution

Present Value of the Cashflow Generated is $131.57 millions

gs = growth in Short Term = 10%

gL = growth till perpetuity = 3%

Y = Year

N = No. of Year

P4 = Present Value of the cashflow from Year 4 onwards to perpitutity

Detailed solution can be found in the images:

jeff jeffy answered 2 years ago
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