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Fixed capital investment rates

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You are given the following information:
? Baseline (last year) sales: $10 million
? Sales growth rate years 1-10: 25%
? Sales growth rate after year 10: 5%
? Profit margin years 1-10: 20%
? Profit margin after year 10: 10%
? Fixed capital investment rate: 10%
? Working capital investment rate: 7%
? Cash tax rate: 30%
? Cost of capital: 20% during years 1-10; and 12% after year 10
? Marketable securities: $2 million
? This company is privately held.

Answer the following questions:

1. What is the value of this company?
2. Say your opportunity cost (as an independent investor) of capital for an investment of this risk is 18% and that the firm offers you a 20% ownership of the company for $6 million, would you accept this offer as one that increases your wealth? If yes, why yes? If not, why not?

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Solution Preview

See the attached file. Thanks

Constant Growth rate after 10 years 5.00%
Discount rate after 10 ...

Solution Summary

Fixed capital investment rates are depicted.

$2.19