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Brett is contemplating the purchase of a small, one-island service station. After-tax cash flows are presently $20,000 per year, and his required rate of return
Brett is contemplating the purchase of a small, one-island service station. After-tax cash flows are presently $20,000 per year, and his required rate of return is 14% a. What is the maximum price Brett should pay for the service station if he expects cash flows to grow at 4% per year to infinity? b. If Brett decides he needs a 15% return, and there will be no growth in after-tax cash flows for 3 years, followed by a 10% per year for years 4 and 5, followed by 3% growth to infinity, what is the maximum amount he should pay?
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