32. Valuing a business (S4.6) Construct a new version of Table 4.8, assuming that Concatenator grows at 20%, 12%, and 6%, instead of 12%, 9%, and 6%. You will get negative early free cash flows.

a. Recalculate the PV of free cash flow. What does your revised PV say about the Concatenator’s PVGO?

b. Suppose Concatenator has no other resources. Thus, it will have to issue stock to cover the negative free cash flows. Does the need to issue shares change your valuation? Explain.

(Hint: Suppose first that Concatenator’s existing stockholders buy all of the newly issued shares. What is the value of the company to these stockholders? Now suppose instead that all the shares are issued to new stockholders, so that existing stockholders don’t have to contribute any cash. Does the value of the company to the existing stockholders change, assuming that the new shares are sold at a fair price?)