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To start up a business its founders must invest as follows: Year : 0 1 2 3 4 Investment: $ 4 , 0 0 0
To start up a business its founders must invest as follows:
Year :
Investment: $ $ $ $ $
Following the times when you are investing, the business is projected to make positive cash flows. For year the cash inflow is expected to be $ and this is expected to triple each year ending with the cash flow that occurs at year In year and into the future, the cash flows are expected to grow at a rate of per year and continuing in perpetuity
c Suppose the owners of the business do a public offering of the business on the stock market at the end of year just after the last investment cash flow and the market has the same expectations of future cash flows as stated above for years onward
i What will be the market price of the business when it goes public at year
ii What would be the present value of this amount discounted back to year
iii What does this imply about the economic profit expected to be received by the people who buy the stock in the public offering?
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