Question
B. You work for Capital Bank as an Analyst, and you were approached by your private banker Mr. Radinamone to assist establish the value of
B. You work for Capital Bank as an Analyst, and you were approached by your private banker Mr. Radinamone to assist establish the value of his business. He expects his company to generate net cash flows of $5, 000,000 in the first year and $2, 000,000 for each of the next five years. The company can be sold for $10, 000,000 seven years from now. Comparable investments in the market earn 10 percent compounded annually. i) Determine how much Mr. Radinamones company is worth. (10 marks) ii) Mr. Radinamone offers to sell the company for P12 000 000. Determine whether the offer should be accepted or rejected based on the NPV rule.
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