Question
In: Finance
A new company has an upfront cost of $250,000 today. Starting one year from today they...
A new company has an upfront cost of $250,000 today. Starting one year from today they will produce a revenue of $85,000 every year for a total of ten years. The following year (t=11), the revenue will grow at a rate of 7% and this growth rate will remain constant every year forever. The interest rate is 8%. What is the value of these cash flows today for this new company?
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Expert Solution
The value of this cash flows is $4,783,101.69 without deducting the upfront cost,
If net cash flows are needed, then $4,783,101.69 - $250,000 = $4,533,101.69
Cal:
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