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?
See the attached file. Thanks
Constant Growth rate after 10 years 5.00%
Discount rate after 10 ...
Fixed capital investment rates are depicted.