3. An Analyst is evaluating Quickie Inc. and shared the following projected net cash flows for the next 10 years. Year 1 Year 2 Year 3 1 000 000 1 000 000 1 150 000 Year 4 1 200 000 Year 5 Year 6 Year 7 1 200 000 1 300 000 1 500 000 Year 8 1 700 000 Year 9 Year 10 2 000 000 2 200 000 Quickie Inc. expects to continue to grow infinitely using CAGR of the 10- year forecast period. Required return relevant to the company is at 12%. 1. What is the compounded annual growth rate of 10-yr net cash flow projection? 2. What is the terminal value incorporated in the net cash flow to firm computation?
3. An Analyst is evaluating Quickie Inc. and shared the following projected net cash flows for the next 10 years. Year 1 Year 2 Year 3 1 000 000 1 000 000 1 150 000 Year 4 1 200 000 Year 5 Year 6 Year 7 1 200 000 1 300 000 1 500 000 Year 8 1 700 000 Year 9 Year 10 2 000 000 2 200 000 Quickie Inc. expects to continue to grow infinitely using CAGR of the 10- year forecast period. Required return relevant to the company is at 12%. 1. What is the compounded annual growth rate of 10-yr net cash flow projection? 2. What is the terminal value incorporated in the net cash flow to firm computation?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
VALUATION METHOD
DISCOUNTED
Transcribed Image Text:3. An Analyst is evaluating Quickie Inc. and shared the following projected net cash flows for
the next 10 years.
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
1 000 000
1 000 000
1 150 000
1 200 000
1 200 000
1 300 000
Year 7
1 500 000
Year 8
1 700 000
Year 9
2 000 000
Year 10
2 200 000
Quickie Inc. expects to continue to grow infinitely using CAGR of the 10- year
forecast period. Required return relevant to the company is at 12%.
1. What is the compounded annual growth rate of 10-yr net cash flow projection?
2. What is the terminal value incorporated in the net cash flow to firm
computation?
Transcribed Image Text:2. Sisyphus Corp. has projected that their performance for the next five years result to the
following:
YEAR
Revenue
Cash Operating Expenses
1
50
30
33.00
55.00
3
60.50
36.30
4.
66.55
39.93
5
73.21
43.92
Terminal value was assumed based on the growth rate of the cash flows. Annual Capital
investment requirement is at P2 million. Income Tax rate is at 30%. The required rate or
return for their business is 14%.
Requirement:
a. Compute for the growth rate
b. How much is the Terminal Value?
c. How much is the Free Cash Flow for years 1-5?
d. How much is the Discounted Net Cash Flows to the Firm for years 1-5?
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