Now lets revisit the same POWSA venture but assume my projection of revenue and cost makes sense for eight years with no profitability after that (either because I will need to reduce my price in year nine to sustain sales volume or I will shut down after 8 years). What is the market value of POWSA equity in that case? Hint: use a spreadsheet to get the present value of anticipated dividends (or use the annuity formula if you are familiar with that) O $21.34 million so that Warren buffet would need something like a 95% stake to make the deal worth his while O $25 million so that Warren Buffet would need an 80% stake to make it worth his while O $17 million so the venture is not viable if $20 million of funding is required for the marketing O $32 million so that Warren Buffet would need more than a 50% stake to make it worth his while
Now lets revisit the same POWSA venture but assume my projection of revenue and cost makes sense for eight years with no profitability after that (either because I will need to reduce my price in year nine to sustain sales volume or I will shut down after 8 years). What is the market value of POWSA equity in that case? Hint: use a spreadsheet to get the present value of anticipated dividends (or use the annuity formula if you are familiar with that) O $21.34 million so that Warren buffet would need something like a 95% stake to make the deal worth his while O $25 million so that Warren Buffet would need an 80% stake to make it worth his while O $17 million so the venture is not viable if $20 million of funding is required for the marketing O $32 million so that Warren Buffet would need more than a 50% stake to make it worth his while
Chapter16: The Markets For Labor, Capital, And Land
Section: Chapter Questions
Problem 12P
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Transcribed Image Text:Now lets revisit the same POWSA venture but assume my projection of revenue and cost makes sense for eight years with no profitability after that (either because I will need
to reduce my price in year nine to sustain sales volume or I will shut down after 8 years). What is the market value of POWSA equity in that case? Hint: use a spreadsheet to
get the present value of anticipated dividends (or use the annuity formula if you are familiar with that)
O $21.34 million so that Warren buffet would need something like a 95% stake to make the deal worth his while
O $25 million so that Warren Buffet would need an 80% stake to make it worth his while
O $17 million so the venture is not viable if $20 million of funding is required for the marketing
O $32 million so that Warren Buffet would need more than a 50% stake to make it worth his while
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