Question 2: Use the following scenario to answer parts A, B, and C: Part A will require you to find the present value of the firm's cash flows from years 1 through 3, part B will require you to find the terminal value of the firm at the end of year 3, and part C will require you to use the information that you calculated in parts A & B to find the total value of the firm at the beginning of year 1 or time 0. Please note that part C will be graded based on the inputs that you derived from the prior parts. If these inputs were incorrect you will still receive full credit for this part if you show me in the below text box that you used the correct method to solve this part. Scenario: The owners of Xlite, a young startup venture, want to determine the value of their firm. Table 1 shows the projected cash inflows and outflows for the next three years. Assume that the company requires a minimum $350 of cash on hand for each of these three years. Year 1 Table 1 Cash Inflow Cash Outflow (negative) $2,500 ($5,000) Year 2 $9,000 ($5,000) Year 3 $18,000 ($5,000) Part A. If the company is in the survival stage and investors require a 25% return on their investments for investing in this company, at the end of year O what is the Net Present Value of Xlite's equity cash flow for only years 1 through 3? Enter your answer in the $x.xxx format and round up to the nearest whole dollar. Part B. If the company's yearly equity cash flows grow by 2% after year 3 until perpetuity (assume the perpetual growth model), what is the terminal value of the firm if investors require a 10% return at the end of year 3. Enter your answer in the Sxxx,xxx format and round up to the nearest whole dollar. Part C. Using the Discounted Equity Cash Flow method, what is the total value of this firm at the beginning of year 1 (time 0)? Enter your answer in the Sxx,xxx format and round up to the nearest whole dollar.
Question 2: Use the following scenario to answer parts A, B, and C: Part A will require you to find the present value of the firm's cash flows from years 1 through 3, part B will require you to find the terminal value of the firm at the end of year 3, and part C will require you to use the information that you calculated in parts A & B to find the total value of the firm at the beginning of year 1 or time 0. Please note that part C will be graded based on the inputs that you derived from the prior parts. If these inputs were incorrect you will still receive full credit for this part if you show me in the below text box that you used the correct method to solve this part. Scenario: The owners of Xlite, a young startup venture, want to determine the value of their firm. Table 1 shows the projected cash inflows and outflows for the next three years. Assume that the company requires a minimum $350 of cash on hand for each of these three years. Year 1 Table 1 Cash Inflow Cash Outflow (negative) $2,500 ($5,000) Year 2 $9,000 ($5,000) Year 3 $18,000 ($5,000) Part A. If the company is in the survival stage and investors require a 25% return on their investments for investing in this company, at the end of year O what is the Net Present Value of Xlite's equity cash flow for only years 1 through 3? Enter your answer in the $x.xxx format and round up to the nearest whole dollar. Part B. If the company's yearly equity cash flows grow by 2% after year 3 until perpetuity (assume the perpetual growth model), what is the terminal value of the firm if investors require a 10% return at the end of year 3. Enter your answer in the Sxxx,xxx format and round up to the nearest whole dollar. Part C. Using the Discounted Equity Cash Flow method, what is the total value of this firm at the beginning of year 1 (time 0)? Enter your answer in the Sxx,xxx format and round up to the nearest whole dollar.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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