A startup company called 'CheeeeapGPT (fictional company) is being eval- uated by its founder Alfred Lunetic...

  

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A startup company called 'CheeeeapGPT" (fictional company) is being eval- uated by its founder Alfred Lunetic at date t= 0, which is the beginning of the startups's growth period. Alfred expects the growth period to last for 3 years. After the growth period, CheeeeapGPT will enter into the early-maturity period. The early-maturity pe- riod is expected to last for 15 years. After CheeeeapGPT finishes the early-maturity period, Alfred expects the company to enter the late-maturity period. The late-maturity period is expected to last forever. In the growth period, the growth rate of invested capital is 100%, the return on invested capital is 50%, and the required rate of return (i.e., the discount rate) is 18%. In the early- maturity period, the growth rate is 25%, the return on invested capital is 50%, and the required rate of return is 12%. In the late-maturity period, the growth rate decreases to 3%, the return on invested capital is 8% and is equal to the required rate of return. The amount of invested capital in CheeeeapGPT at the beginning of the growth period is $100,000. 1. What is the economic value as of t = 0 of the free cash flows CheeeeapGPT is ex- pected to produce during the growth period? 2. What is the economic value as of t= 0 of the free cash flows CheeeeapGPT is ex- pected to produce during the early-maturity period? 3. What is the economic value as of t = 0 of the free cash flows CheeeeapGPT is ex- pected to produce during the late-maturity period? 4. What is the economic value of CheeeeapGPT as of t = 0? 5. If the growth rate in the late-maturity period is 5.5%, calculate the change in the eco- nomic value of CheeeeapGPT relative to the one computed in part 4. Explain the result you obtained in one or two sentences. 6. If the return on invested capital in the early-maturity period decreases to 35%, does the value of CheeeeapGPT at t = 0 change? If it changes, compute the new value and explain why the value changes. If it does not change, please explain why the value does not change. A startup company called 'CheeeeapGPT" (fictional company) is being eval- uated by its founder Alfred Lunetic at date t= 0, which is the beginning of the startups's growth period. Alfred expects the growth period to last for 3 years. After the growth period, CheeeeapGPT will enter into the early-maturity period. The early-maturity pe- riod is expected to last for 15 years. After CheeeeapGPT finishes the early-maturity period, Alfred expects the company to enter the late-maturity period. The late-maturity period is expected to last forever. In the growth period, the growth rate of invested capital is 100%, the return on invested capital is 50%, and the required rate of return (i.e., the discount rate) is 18%. In the early- maturity period, the growth rate is 25%, the return on invested capital is 50%, and the required rate of return is 12%. In the late-maturity period, the growth rate decreases to 3%, the return on invested capital is 8% and is equal to the required rate of return. The amount of invested capital in CheeeeapGPT at the beginning of the growth period is $100,000. 1. What is the economic value as of t = 0 of the free cash flows CheeeeapGPT is ex- pected to produce during the growth period? 2. What is the economic value as of t= 0 of the free cash flows CheeeeapGPT is ex- pected to produce during the early-maturity period? 3. What is the economic value as of t = 0 of the free cash flows CheeeeapGPT is ex- pected to produce during the late-maturity period? 4. What is the economic value of CheeeeapGPT as of t = 0? 5. If the growth rate in the late-maturity period is 5.5%, calculate the change in the eco- nomic value of CheeeeapGPT relative to the one computed in part 4. Explain the result you obtained in one or two sentences. 6. If the return on invested capital in the early-maturity period decreases to 35%, does the value of CheeeeapGPT at t = 0 change? If it changes, compute the new value and explain why the value changes. If it does not change, please explain why the value does not change.

Answer rating: 100% (QA)

To calculate the economic value of CheeeeapGPT at different periods we can use the discounted cash flow DCF approach The economic value is the present ... View the full answer