Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

You are going to consider to takeover new start-up company (FIN-SOL) providing fintech solution to Brokerage house industry. Currently, FIN-SOL is making $63,750 of net

You are going to consider to takeover new start-up company (FIN-SOL) providing fintech solution to Brokerage house industry. Currently, FIN-SOL is making $63,750 of net cash flow (tax adjusted) annually. Based on market analysis conducted by your research team, of similar-risk investment 4 opportunities, you must earn atleast 18% rate of return on such type of investment opportunities bearing similar-risk. Due to current COVID-19 pandemic situation in all over the world, you are reluctant to take risk and also feel risky about future cash flows, now you are going to estimate the firms value using several possible assumptions about the growth rate of cash flows. Calculate FIN-SOLs value if you expect growth in cash flows 0% annually from now to infinity? Calculate FIN-SOLs value if you expect that cash flows will grow at a constant rate of 7% (annually) from now to infinity? Calculate FIN-SOLs value if you expect cash flow will grow at 12% (annually) for the first 4 years, followed by a constant annual rate of 8% from year 5 to infinity?Critically evaluate above result and propose whether you should go for this investment opportunity or avoid it?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Valuation Workbook

Authors: Tim Koller, Marc Goedhart, David Wessels, Jeffrey P. Lessard, McKinsey & Company

4th Edition

0471702161, 978-0471702160

More Books

Students also viewed these Finance questions

Question

7-16 Compare Web 2.0 and Web 3.0.

Answered: 1 week ago