In the following problem, you will need to use discounted cash flow techniques that you learned to figure out a value for the business.Here are the assumptions:
The final year net income will be used as a cash flow since the owners are using it this way and it will increase 3% per year with inflation
Improvement estimates will be subtracted in the year they are made from this cash flow to come up with net cash flows (Equipment, Remodel, Roof, Inventory, Initial Cash, Parking Lot)
Loan payments will be used with the following terms
10 year term, annual interest at 8%, principal 200,000
The discount rate will be 12% (The approximate rate you could earn if you invested your money in the stock market)
After 10 years, the business will be sold for $250,000
Fill in the last three rows of the table to find the value of the business using this technique (Remember
In the following problem, you will need to use discounted cash flow techniques that you learned to figure out a value for the business.Here are the assumptions:
The final year net income will be used as a cash flow since the owners are using it this way and it will increase 3% per year with inflation
Improvement estimates will be subtracted in the year they are made from this cash flow to come up with net cash flows (Equipment, Remodel, Roof, Inventory, Initial Cash, Parking Lot)
Loan payments will be used with the following terms
10 year term, annual interest at 8%, principal 200,000
The discount rate will be 12% (The approximate rate you could earn if you invested your money in the stock market)
After 10 years, the business will be sold for $250,000
Fill in the last three rows of the table to find the value of the business using this technique (Remember
Related questions
Can you help me confirm the calculations on this assignmentproject has the following estimates for net cash flow.
| Year | Pessimistic Cash Flow Estimate | Most Likely Cash Flow Estimate | Optimistic Cash Flow Estimate |
| 1 | $14,000 | $20,000 | $22,000 |
| 2 | $19,000 | $25,000 | $30,000 |
| 3 | $27,000 | $30,000 | $36,000 |
| 4 | $32,000 | $35,000 | $39,000 |
At the beginning of this four-year project, the project costs are expected to be $65,000 and no expenses will be incurred thereafter. (a) Compute the cash flow for each year using the three-point estimation technique. (b) Assuming an inflation rate of 3% and the required rate of return of 8%, compute the net present value of the project.
