24. Cash flows from an e-commerce venture amount to $1 million in the current year, with...

24. Cash flows from an e-commerce venture amount to $1 million in the current year, with an expected growth rate of 4% forever. Assuming a required rate of 12%, what is the value of this venture at the present time?

A. $12.5 B. $12,500,000 C. $12,500 D. $13,000,000 E. $125,000

Expert Solution

24. Cash flows from an e-commerce venture amount to $1 million in the current year, with an expected growth rate of 4% forever. Assuming a required rate of 12%, what is the value of this venture at the present time?

Answer: D. $13,000,000

Working

Since growth rate is constant, we can use the following formula for calculating the value of the venture.

Value of the venture = (Current year cash flow * (1 + Growth rate)) ÷ (Required rate - Growth rate)

= $1,000,000 * (1 + 0.04) ÷ (0.12 – 0.04)

= $1,040,000 ÷ 0.08

= $13,000,000

Where

Current year cash flow = $1,000,000 (provided in the question)
Growth rate = 4% (provided in the question)
Required rate = 12% (provided in the question)

jeff jeffy answered 2 years ago

If the firm’s expected future free cash flows in year 1 is $1.2 million, in year...

If the firm’s expected future free cash flows in year 1 is $1.2 million, in year 2 it is expected to equal $1.6 million, in year 3 it is expected to equal $2.0 million and then the expected future free cash flows are expected to increase at a constant rate of 3%/year into perpetuity. Assume the firm’s WACC is 8%/year. Provide an equation, including all of the inputs, to calculate the present value of the expected future free cash flows...

Year 1 2 3 4 5 Free Cash Flow $22 million $24 million $30 million $31...

Year 1 2 3 4 5 Free Cash Flow $22 million $24 million $30 million $31 million $35 million XYZ Industries is expected to generate the above free cash flows over the next five years, after which free cash flows are expected to grow at a rate of 3% per year. If the weighted average cost of capital is 8% and XYZ has cash of $18 million, debt of $35 million, and 74 million shares outstanding, what is General Industries'...

compute the statement of cash flows -- compute the amount of cash from operating activities, cash...

compute the statement of cash flows -- compute the amount of cash from operating activities, cash from investing activities, and cash from financing activities. INCOME STATEMENT, 2018 REVENUES $1,000 COGS EXCL. DEPRECIATION 600 DEPRECIATION 100 EXPENSES 200 EBIT 100 INTEREST 50 EBT 50 TAXES @ 40% 20 NET INCOME 30 BALANCE SHEETS 12/31/17 12/31/18 CASH $100 CASH $280 A/R 50 A/R 100 INVENTORIES 90 INVENTORIES 150 CURRENT ASSETS 240 CURRENT ASSETS 530 GROSS PP&E 1,000 GROSS PP&E 1,000 - ACCUM. DEPRE. 300 - ACCUM. DEPRE 400 NET PP&E 700 NET PP&E 600 TOTAL ASSETS 940...

Suppose you are a British venture capitalist holding a major stake in an e-commerce start-up in...

Suppose you are a British venture capitalist holding a major stake in an e-commerce start-up in Silicon Valley. As a British resident, you are concerned with the pound value of your U.S. equity position. As an economist, you estimate 3 scenarios for the future, as described in the table below: Scenario Probability Forecast exchange rate (£/$) Forecast asset value (in $) 1 0.2 0.7485 $1,000,000 2 0.4 0.7470 $700,000 3 0.4 0.7451 $500,000 (a) Estimate your exposure to the exchange...

1.A. A company is projected to generate free cash flows of $800 million per year for...

1.A. A company is projected to generate free cash flows of $800 million per year for the next 3 years (FCFF1, FCFF2 and FCFF3). Thereafter, the cash flows are expected to grow at a 1.5% rate in perpetuity. The company's cost of capital is 12.0%. The company owes $100 million to lenders and has $90 million in cash. If it has 150 million shares outstanding, what is your estimate for its stock price? Round to one decimal place 1.B. A...

A company is forecasted to generate free cash flows of $21million next year and $24...

A company is forecasted to generate free cash flows of $21 million next year and $24 million the year after. After that, cash flows are projected to grow at a stable rate in perpetuity. The company's cost of capital is 8.1%. The company has $48 million in debt, $17 million of cash, and 28 million shares outstanding. Using an exit multiple for the company's free cash flows (EV/FCFF) of 14, what's your estimate of the company's stock price?a. 30.8b. 26.8c....

depicts differences in the business process flows for traditional retail businesses and e-Commerce businesses. 1.What are...

depicts differences in the business process flows for traditional retail businesses and e-Commerce businesses. 1.What are the key differences between these process flows? Explain your answer. depicts differences in business process activities for traditional retail and e-Commerce businesses 1.In your opinion, what are the key technology differences between the traditional and e-Commerce business models? Each student could interpret the answer from a different perspective; the key is how well the student explains the answer.

The cash flows for the two projects are as follows? ($ million): Project Year 0 Year...

The cash flows for the two projects are as follows? ($ million): Project Year 0 Year 1 Year 2 Year 3 Year 4 A - $ 100 $26 $28 $42 $52 B -$ 100 $52 $42 $28 $18 a. What is the IRR of each? project? b. What is the NPV of each project at your cost of? capital? c. At what cost of capital are you indifferent between the two? projects? d. What should you? do?

How E - commerce is different from traditional commerce? Describe four differences with example.

A project has expected cash flows of $55 next year (year 1). These cash flows will...

A project has expected cash flows of $55 next year (year 1). These cash flows will grow at 6% per year through year 6. Growth from year 6 to 7 will be -2%, and this negative growth will continue in perpetuity. Assume a discount rate of 8%. What is the present value today (year 0) of these cash flows? DO BY HAND

Question