2. Love Potion Corp. just filed for a patent on a new formula that has been proven to make rats fall in love. The preliminary tests show that it has the same effect on human subjects. You decide that this firm has huge growth potential and that this product is the wave of the future. However, you are an astute business major and know that you must do some analysis first. Using the information provided, calculate the value of Love Potion. The firm's current 1999 free cash flow was 1,000. It keeps excess cash of 3,000. You expect sales to grow at a real rate of 20% for the next 2 years and then to stabilize at a real rate of 10%. Cash flow occurs throughout the year. Assume the inflation rate is 3% and the firm's nominal discount rate is 21%. Answer the following questions in turn (don't round your answers, but input your answer with 2 decimal points). (1) Compute the real discount rate (in the format of XX.XX%) Real discount rate = (2) Compute the terminal value at the end of year 2 Terminal value (year 2) = (3) Compute the present value of all future cash flows (as of year 0), without mid-year considerations PV of FCFs = (4) Adjust the present value using mid-year discounting PV of FCFs w. mid-year discounting = (5) Compute total firm value Firm value = (6) If the firm is financed with $5,000 in debt, and has 1000 shares outstanding. What is the price. per share? Price =

2. Love Potion Corp. just filed for a patent on a new formula that has been proven to make rats fall in love. The preliminary tests show that it has the same effect on human subjects. You decide that this firm has huge growth potential and that this product is the wave of the future. However, you are an astute business major and know that you must do some analysis first. Using the information provided, calculate the value of Love Potion. The firm's current 1999 free cash flow was 1,000. It keeps excess cash of 3,000. You expect sales to grow at a real rate of 20% for the next 2 years and then to stabilize at a real rate of 10%. Cash flow occurs throughout the year. Assume the inflation rate is 3% and the firm's nominal discount rate is 21\%. Answer the following questions in turn (don't round your answers, but input your answer with 2 decimal points). (1) Compute the real discount rate (in the format of XXXXX\%) Real discount rate = (2) Compute the terminal value at the end of year 2 Terminal value ( year 2)= (3) Compute the present value of all future cash flows (as of year 0 ), without mid-year considerations PV of FCFs = (4) Adjust the present value using mid-year discounting PV of FCFS w. mid-year discounting = (5) Compute total firm value Firm value = (6) If the firm is financed with $5,000 in debt, and has 1000 shares outstanding. What is the price per share? Price =