Question
Dianne Anderson is the owner and CEO of Anderson Bus Lines which have taken over several additional new routes which will commence at the end
Dianne Anderson is the owner and CEO of Anderson Bus Lines which have taken over several additional new routes which will commence at the end of Year 1. Dianne has invested heavily in new coaches for her firm and as a result expects to be cash flow negative for a few years whilst the new routes are established. She has presented the following table of expected cash flows and has asked you to provide a valuation for her company at different stages on its future timeline.
Year | Cash Flows |
0 | -1,000,000 |
1 | -250,000 |
2 | 0 |
3 | 250,000 |
4 | 750,000 |
5 | 1,500,000 |
6 | 2,500,000 |
7 | 3,000,000 |
1) Dianne has a required return of 15% per annum.
2) Calculate the value of Anderson Bus Lines as at Year 0, Year 2 and Year 7.
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