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Two companies company A and B are identical in their products and sales. For the next 1 0 years sales revenue of A and B
Two companies company A and B are identical in their products and sales. For the next years sales revenue of A and will be $ million per year. The operating expense for both companies is $ million per year. Operating expenses are all paid right away in cash. Company is better at collecting payment for its sales and collects all the sales at the end of each year. Company B only collects of its sales in the current year. The remaining balance is collected at the end of the following two years. Also, operating expenses on sales revenue no longer exist after years. Ignore other costs and taxes. Both companies face a discount rate of per year.
a Draw a timeline or a table of the net cash flow of company A and its accounting net income each year for the next years. Note: accounting net income only concerns revenue and expenses.
b What is the valuation of company AHint: valuation is the present value of all the future cash flows at time zero; refer to chapter of the textbook for a review of present value
c Draw a timeline or a table of the net cash flow of company and its accounting net income each year for the next years.
d "Because the net income of A and B is the same, the valuation of A and B is the same." Evaluate this statement with supporting calculations.
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