A certain companys cash flows are expected to grow at a rate

A certain company?s cash flows are expected to grow at a rate of 15% for the next eight years before tapering off to a constant growth rate of 6% forever. The current year?s cash flow is $50,000 (already paid). If the firm?s cost of capital is 20%, what should its fair market value be? Round your answer to the nearest dollar.

A. $331,856

B. $888,126

C. $641,583

D. $309,727

Fair market value is 601,181.84 (please check the inputs given)

Discount rate	20.0000%
Cash flows	Year	Discounted CF= cash flows/(1+rate)^year	Cumulative cash flow
-	0	-	-
57,500.000	1	47,916.67	47,916.67
66,125.000	2	45,920.14	93,836.81
76,043.750	3	44,006.80	137,843.61
87,450.313	4	42,173.18	180,016.79
100,567.859	5	40,415.97	220,432.76
115,653.038	6	38,731.97	259,164.72
133,000.994	7	37,118.14	296,282.86
152,951.143	8	35,571.55	331,854.41
1,158,058.655	8	269,327.43	601,181.84

A certain company?s cash flows are expected to grow at a rate of 15% for the next eight years before tapering off to a constant growth rate of 6% forever. The c

A certain companys cash flows are expected to grow at a rate

Solution

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