Problem 2: CASH FLOW PROJECTIONS AND DCF-VALUATION OF A HIGH-GROWTH FIRM

Suppose you are asked to value an all-equity financed start-up firm that is expected to generate a Free Cash Flow of -$40 million next year, and -$20 million in the following year (year 2), before the firm turns profitable in year 3. Its first positive cash flow equals $4 million, and cash flows are expected to grow at a rate of 25% per year for 7 years (until year 10). After this period, the growth rate drops to 3% per year indefinitely. Value the start-up company if the relevant discount rate is equal to 8%.

What is the value of the start-up company if the relevant discount rate is equal to 8%?