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A startup company called "LumiereBeauty" is being evaluated by its founders at date t = 0, which is the beginning of its growth period. The growth period is ex- pected to last for 5 years. After the growth period, LumiereBeauty will enter into theearly-maturity period. The early-maturity period is expected to last for 15 years. After it finishes the early-maturity period, the founders of LumiereBeauty expect the company to enter the late-maturity period. The late-maturity period is expected to last forever.
In the growth period, the growth rate of invested capital is 100%, the return on invested capital is 15%, and the required rate of return is 20%. In the early-maturity period, the growth rate is 10%, the return on invested capital is 50%, and the required rate of return is 12%. In the late-maturity period, the growth rate decreases to 3%, the return on invested capital is 8% and is equal to the required rate of return. The amount of invested capital in LumiereBeauty at the beginning of the growth period is $3 million.
1. What is the economic value at t = 0 of the free cash flows LumiereBeauty is expected to produce during the growth period?
Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..
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