You estimate that over the long-term cash flows will grow


You are considering investing in an auto parts store. The store has a 10 year lease, which implies that it will remain in business for the next 10 years. It produced annual cashflows of $400,000 (after all expenses were deducted). The discount rate to value businesses with similar risk levels is 10%. You estimate that, over the long-term, cash flows will grow at 5% per year because of inflation expectations. Based on this information, what is the estimated value of the store?

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Finance Basics: You estimate that over the long-term cash flows will grow
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