Common stock value long dash—Allgrowth models. Personal Finance Problem. You are evaluating the potential purchase of a small business currently generating ?$40,000 of? after-tax cash flow ?(Upper D 0D0equals=?$40,000?).
On the basis of a review of? similar-risk investment? opportunities, you must earn a rate of return of 13?% on the proposed purchase. Because you are relatively uncertain about future cash? flows, you decide to estimate the? firm's value using two possible assumptions about the growth rate of cash flows.
a. What is the? firm's value if cash flows are expected to grow at an annual rate of 0?% from now to? infinity?
b. What is the? firm's value if cash flows are expected to grow at a constant rate of7?%from now to? infinity?
c. What is the? firm's value if cash flows are expected to grow at an annual rate of10?% or the first 2? years, followed by a constant annual rate of 7?% from year 3 to? infinity?
a. The? firm's value if cash flows are expected to grow at an annual rate of 0% from now to infinity is_______ ?
b. The? firm's value if cash flows are expected to grow at a constant rate of 7% from now to infinity is _________?
The? firm's value if cash flows are expected to grow at an annual rate of 10% for the first 2 years followed by a constant annual rate of 7?% from year 3 to infinity is_____________?