Question

Use the Free Cash Flow method of valuation and the following information, to calculate the value for a venture with the following information. Expected sales at year zero (or beginning of year 1): $2.50 M; growth rate in sales for the first 8 years: 35%; and for years 9-on: 10%; Annual profit margin (or EBIAT/Sales) for all years=22%; Annual asset intensity ratio (or (FA+WC)/Sales) for all years = 32%; discount rate in years 1-8: 30%, and in years 9-on: 16%. Use Excel for this question. Total Points given: 75 points

Answer 1

Under Perpectual growth model the value of firm is the total of fixed growth cash flows and for reccuring cash flows and perpectual growth cash flows for non reccuring cash flows.

Fixed growth is 35% for 8 years and perpectual growth discounted rate is 30% and from 9th year on wards growth is 10% discounted rate is 16% and the annual margin for all years is 22%