Calculate the terminal value assuming that cash flows

Assignment Help Financial Management

Reference no: EM13847016

A project generates the following sequence of cash flows over six years.

Year Cash Flow ($ millions)

0 -59.0

1 4.00

2 5.00

3 6.00

4 7.33

5 8.00

6 8.25

a. Calculate the NPV over the six years. The discount rate is 11%.

b. This project does not end after the sixth year but instead will generate cash flows far into the future. Estimate the project's terminal value, assuming that cash flows after year 6 will continue at $8.25 million per year in perpetuity, and then recalculate the investment's NPV.

c. Calculate the terminal value assuming that cash flows after the sixth year grow at 2% annually in perpetuity, and then recalculate the NPV.

d. Using market multiples, calculate the terminal value by estimating the project's market value at the end of year 6. Specifically, calculate the terminal value while assuming that, at the end of year 6, the project's market value will be 10 times greater than its most recent annual cash flow. Recalculate the NPV.

Reference no: EM13847016

Questions Cloud

Prove that the regression r2 is identical to the square : Prove that the regression R2 is identical to the square of the correlation coefficient between two variables Y and X.

What can not represent the probabilty of a event : What can not represent the probabilty of a event0, .008, - -.6, 55% 605/1269, 50/37 choose answer below

Find the mean, variance, and standard deviation : Find the mean, variance, and standard deviation of the binomial distribution with the given values of n and p n=127 p=0.58

The impact to the organization if the assets are attacked : Prepare a 350- to 430-word risk assessment paper which identifies and explains the following items: The impact to the organization if the assets are attacked (use a scale of 0 to 4, with 0 the lowest impact and 4 the highest impact)

Calculate the terminal value assuming that cash flows : A project generates the following sequence of cash flows over six years. Calculate the NPV over the six years. The discount rate is 11%. Calculate the terminal value assuming that cash flows after the sixth year grow at 2% annually in perpetuity, and..

The current status of rebuilding and reconstruction : Describe any special predictions, noteworthy events, etc. leading up to the storm. tell about the characteristics of the storm such as barometric pressure, the path of the storm, the land areas impacted by the storm, destruction in financial and huma..

An important part of writing persuasively : Taking a stand on an issue is an important part of writing persuasively. For this assessment, write a 500-600word (2-3 pages double-spaced) essay that states your position on an issue of your choice. Refer to thehandout titled "Topics for Research Pa..

Waldo County-calculate the NPV : Read the case study “Waldo County” at the end of Chapter 10. In a two –to –four page paper, address the following: Given the projections in the Table 10.8, in one- to –two pages, calculate the NPV and interpret your results.

Currency hedging-global financing operations : Explain how your topic is used in global financing operations and describe its importance in managing risks.

User Account

All Pages