Estimate the terminal value of this business

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a) Using the following information, estimate the value of Scatter Advertiser Ltd, an e-commerce start-up company:

Company and operations set-up costs (total immediate expenditure) $2,000,000; Year one (end) free cash flow $2,200,000; Year two (end) free cash flow $2,500,000. You also estimate that the constant growth rate in free cash flows from year three will be 1.5 percent per annum. You intend to sell this start-up company after two years of operation. The required rate of return on similar projects is 10 percent per annum.

Required:

i) Estimate the terminal value of this business at the end of year two.

ii) Estimate the present value of this business given the information provided.

Reference no: EM132569573

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