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HoHum Portal is considering whether to acquire startup firm, Wow Apps, for $1 billion. HoHum does not expect Wow to generate any cash flows until
HoHum Portal is considering whether to acquire startup firm, Wow Apps, for $1 billion. HoHum does not expect Wow to generate any cash flows until three years from today when it generates a net cash inflow of $200 million. Net cash flows would then grow by 25% per year through 10 years from today. Wow would then shut down. HoHum estimates that the cost of capital for Wow equals 15%. Set up the calculations needed to determine the net present value of the investment by HoHum in Wow.
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