I need to calculate the price for both the best and worst case scenarios. I have attached a spreadsheet with the best and worst cases. I want to calculate each using a discount rate of 9.7% and then also using 11.2%. This is the hint the teacher gave us, but i still cant figure it out:
Your first step is to determine the appropriate discount rate to use. I encourage you to have that discussion in the discussion area and decide as a group.
Next, using the best case scenario cash flows you produced for Blue Mesa Task 3, and the worst case which are provided, you need to discount each of those annual cash flows to put them into present value terms.
The terminal value is essentially a growing perpetuity that begins in year 10 of the forecast period. To calculate the terminal value, divide the year 10 cash flow by the difference between the discount rate and the estimated rate of growth of the perpetuity. Then, discount that terminal value number for 9 periods to put it into present value terms.
Sum the discounted terminal value with the other 9 discounted cash flows, and subtract the initial investment, which is the Laredo debt payoff, and you should be good to go!
The solution calculates PV for the best and worst case scenarios.