A. Using the DCF Method, calculate the value of the following company.

Cash Flows:

Year 1: $150,000

Year 2: $140,000

Year 3: $225,000

Year 4: $175,000

Discount rate = 29%.

B. Which of the following is a reason that some investors like to use the DCF method?

The conversion from balance sheet to company value is made easier because of the effect of depreciation.

Net income is considered to be the superior measure of a company's success.

It's faster and easier to calculate than any other method.

Cash flow is considered a better measure of company success than net income because of the effect of non-cash expenses.

C. What discount rate should one use in computing a DCF?

The S&P 500 historical rate of return for the past 10 years.

A rate that fairly compensates the investor for the risk associated with the company.

The industry standard of 15%.

Anything less than 5%.