Revision as of 18:53, 4 December 2023 by Admin (Created page with "Company ABC’s after-tax cash flow is $10 million (at the end of) this year and expected to grow at 5% per year forever. The appropriate discount rate is 9%. What is the value of company ABC? <ul class="mw-excansopts"> <li>$111M</li> <li>$175M</li> <li>$238M</li> <li>$250M</li> <li>$275M</li> </ul> '''References''' {{cite web |url=https://alo.mit.edu/wp-content/uploads/2015/06/PS_Part1.pdf |last1=Lo |first1=Andrew W. |last2 = Wang | first2 = Jiang |website=alo.mit.ed...")
ABy Admin
Dec 04'23
Exercise
Company ABC’s after-tax cash flow is $10 million (at the end of) this year and expected to grow at 5% per year forever. The appropriate discount rate is 9%. What is the value of company ABC?
- $111M
- $175M
- $238M
- $250M
- $275M
References
Lo, Andrew W.; Wang, Jiang. "MIT Sloan Finance Problems and Solutions Collection Finance Theory I" (PDF). alo.mit.edu. Retrieved November 30, 2023.
ABy Admin
Dec 04'23
Solution: D
The value of company ABC is the PV of the growing annuity of cash flow:
PV = 10/(1.09−1.05) = $250 million.
References
Lo, Andrew W.; Wang, Jiang. "MIT Sloan Finance Problems and Solutions Collection Finance Theory I" (PDF). alo.mit.edu. Retrieved November 30, 2023.