Question
From Chapter 10 of Financing New Ventures Question #2 The TecOne Corporation is about to begin producing and selling its prototype product. Annual cash flows
From Chapter 10 of Financing New Ventures Question #2
The TecOne Corporation is about to begin producing and selling its prototype product. Annual cash flows for the next five years are forecasted as:
| Year | Cash Flow |
|---|---|
| 1 | -$50,000 |
| 2 | -$20,000 |
| 3 | $100,000 |
| 4 | $400,000 |
| 5 | $800,000 |
My Questions
Part C. Now extend Part B one step further. Assume that the required rate of return on the investment will drop from 40% to 20% beginning in Year 6 to reflect a drop in operating or business risk. Calculate the ventures present value.
From part C, why is it appropriate to use rinf =20% instead of rv =40% to calculate the terminal value? How big is the impact on the valuation of the venture?
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Catechism Of Money
Authors: Joseph P. Root
1st Edition
1377114929, 978-1377114927
