Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Based on the info below what should be the highest level of initial investment, I have a max of $500,000 for each company, Why do

Based on the info below

what should be the highest level of initial investment, I have a max of $500,000 for each company, Why do you think it's a good idea? I need help in explaining the highest dollar amount you would I am willing to invest in company 1 ad 2 and why

image text in transcribed

image text in transcribed

Company 1 Discount Rate (WACC) Perpetual Growth Rate 10.00% 2.50% Year 1 Year 2 Year 3 Year 4 Year 5 $30,000 $50,000 80,000 $120,000 Historical Free Cash Flow Growth Rate 66.67% 60.00% 50.00% Less Company Purchase Expense $500,000 $500,000 $500,000 $500,000 Basic Cash Flow -$470,000 -$450,000 -420,000 -$380,000 Discounted Cash Flow (DCF) Present $27,273 $41,322 $60,105.18 $81,962 Year 5 Terminal Value (TV) $170,000 $295,000 41.67% Perpertual Growth Rate 2.50% $500,000 Less Company Purchase Expens $500,000 -$330,000 Basic Cash Flow -$205,000 $105,557 Discounted Cash Flow (DCF) Pres $183, 172 Company 2 Discounted Rate (WAAC) Perpetual Growth Rate 10.00% 2.50% Historical Free Cash Flow Rate Less Company Purchase Expense Basic Cash Flow Discounted Cash Flow (DCF) Year 1 Year 2 Year 3 Year 4 Year 5 $50,000 $70,000 $90,000 $110.000 $130,000 40.00% 28.57% 22.22% 18.18% Perpetual Growth Rate $500,000 $500,000 $500,000 $500,000 $500,000 Less Company Purchase Expense -$450,000 -$430,000 -$410,000 -$390,000 -$370,000 Basic Cash Flow $45,455 $57,851 $67,618 $75,131 $80,720 Discounted Cash Flow (DCF) Year 5 Terminal Value (TV) $280,000 2.50% $500,000 -$220,000 $173.858

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

More Books

Students also viewed these Finance questions