I have calculated PV’s and NPV’s, but a little confused near the end.  I think I did something wrong in determining the terminal value at year 10 to be able to continue, and do not trust my calculations.  Could you check them over for me (The PV‘s, and NPV and tell me how you derived the terminal value if mine is wrong)?  When it says (below)  discount the terminal value for 9 periods to put into present value terms, confused  here.  Could you please help me find a price estimate after checking my work?  The relevant work in question is below the blue line on the  attached spreadsheet.  The exact way the assignment was worded is below.

I don’t know if this is relevant, but it says on project materials that “for Debt: The company owed $62.46 million in long term senior and subordinate debt, including short-term notes due. At that time, the company had $22 million in the bank credit facilities available, but it had not borrowed against these available facilities.  It also has $81,000 in cash on its balance sheet.  (This is referring to the company in question that we are trying to purchase-again I didn’t want to leave anything out, but don’t know if this is relevant-I just assumed the debt payoff is the initial investment, the 62.46 million)

Overall Assignment:  Generate spreadsheet that shows best case and worse case prices that the company will consider paying for the investment.

Determine a price estimate for  this company via the Net Value technique using the discount rate of 11.2%.  Use best case scenario and worse case scenario cash flows given and discount each of those annual cash flows to put them into present value terms.  The terminal value is essentially the perpetuity that begins at the end of year 10 of the forecast period.  To calculate the terminal value divide year 10 cash flow by the difference between the disount rate and the estimate rate of growth of the perpetuity. (I’m understanding this to be 3% at end of yr 10)  Then discount that terminal value number for 9 periods to put into present value terms( I confused right here). Sum the discounted terminal value with the other 9 discounted cash flows and substract the initial investment ( 62.46 million) and you should be ready.

This company has rejected bids of 30-35 million from other companies trying to buy them out.  Why?  What price should we pay to buy them out according to your calculations (best and worse case)?