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Question 1 Assume that our client, GeekTech Inc. is a publicly traded technology company. GeekTech Inc. faces a marginal tax rate of 4 0 %
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Assume that our client, GeekTech Inc. is a publicly traded technology company. GeekTech Inc. faces a marginal tax rate of and applies a plowback of of Net Income into Retained Earnings.
First, you are to create the necessary Balance Sheets and Income Statement and then calculate the annual Cash Flow from Assets aka: CFFA or Free Cash Flows FCF for GeekTech Inc. A constraint here, however, is that your last CFFA aka: CFFA must range between $ and $ annually.
Second, after calculating GeekTech Inc.s last CFFA, you are to assume that this corporation is a constantgrowth perpetuity and estimate its present value aka: intrinsic value, market value
Assume the market determined risk adjusted required rate of return aka: the appropriate discount rate, WACC for GeekTech Inc. is and the annual growth rate in GeekTech Inc's CFFA is
Question
GeekTech Inc. is confused about their understanding of the convergence of a finite series of cash flows aka: annuity to the value of a perpetuity aka: no growth perpetuity Specifically, they are confused about the fact that lower rates converge faster than higher rates.
First, provide an example of how lower rates converge faster than higher rates. Second, what are the implications from lower rates converging faster to the present value of a perpetuity than higher rates. Hypothetical numbers can be created as long as they fall within the insturctional guidelines.
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