You are evaluating the potential purchase of a Medium Enterprise currently generating $32,500 of after-tax cash flow. On the basis of a review of similar-risk investment opportunities, you must earn an 15.5% rate of return on the proposed purchase. Because you are relatively uncertain about future cash flows, you decide to estimate the firms value using several possible assumptions about the growth rate of cash flows.

a. What is the firms value if cash flows are expected to grow at an annual rate of 0% from now to infinity? (Zero Growth Model)

b. What is the firms value if cash flows are expected to grow at a constant annual rate (Assume it as your roll number like 15) from now to infinity? (Constant Growth Model)

c. What is the firms value if cash flows are expected to grow at an annual rate of 12% for the first 2 years, followed by a constant annual rate of 7% from year 3 to infinity? (Variable Growth Model).