Evaluating the potential purchase of small business

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Reference no: EM131871727

You are evaluating the potential purchase of a small business currently generating

?$43500 of? after-tax cash flow ?(Upper D0=?$43500?).

On the basis of a review of? similar-risk investment? opportunities, you must earn a rate of return of 17?%

on the proposed purchase. Because you are relatively uncertain about future cash? flows, you decide to estimate the? firm's value using two possible assumptions about the growth rate of cash flows.

a. What is the? firm's value if cash flows are expected to grow at an annual rate of 0?% from now to? infinity?

b. What is the? firm's value if cash flows are expected to grow at a constant rate of5 ?% from now to? infinity?

c. What is the? firm's value if cash flows are expected to grow at an annual rate of9?% for the first 2? years, followed by a constant annual rate of 5?% from year 3 to?infinity?

Reference no: EM131871727

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