Common stock value. All growth models. You are evaluating the potential purchase of a small business currently generating $43,500 of aftertax cash flow . On the basis of a review of similar risk investment opportunities, you must earn a rate of return of 18% 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 amount of the after cash flow in year 1 $__________ ?
b. What is the amount of the after cash flow in year 2 $__________ ?
c. The firm’s present value of the after-tax cash flows during the initial growth period is $_________.
d. What is the amount of the after-tax cash flow in year 3 $_________?
e. What is the value of the firm at the end of the initial growth period_________?
f. What is the present value of the firm _________?
g. The firm’s value if cash flows are expected to grow at an annual rate of 14% for the first 2 years, followed by a constant annual rate of 9% from year 3 to infinity is $________.
h. Please provide step-by-step solutions.