Question: You are evaluating a start-up company that is currently generating $500,000 in annual revenue. The company is expected to grow at a rate of 10%

You are evaluating a start-up company that is currently generating $500,000 in annual revenue. The company is expected to grow at a rate of 10% per year for the next 5 years before slowing down to a 5% growth rate for the following 5 years. The company has a cost of capital of 12%. Using the discounted cash flow method, what is the current enterprise value of the company?

Step by Step Solution

★★★★★

3.53 Rating (156 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

The detailed answer for the above question is provided below Step 1 Calculate the Free Cash Flow to the Firm FCFF FCFF EBIT 1 tax rate depreciation am... View full answer

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

Introduction Good Fortune Restaurant Supplies (GFRS) is owned by Anna Vuong, a graduate of UWS. GFRS has grown rapidly and has found that managing its Sales function is essential to providing...

A firm's earnings are expected to grow at a rate equal to the required rate of return for its equity, 12 percent. What is the trailing P/E ratio? What is the forward P/E ratio?

The Aldridge Co. is expected to grow at 6% into the indefinite future. Its latest annual dividend was $2.50. Treasury bills currently earn 7% and the S&P 500 yields 11%. a. What price should Aldridge...

A firm chooses to grow at a rate above its sustainable rate. What changes might we expect to see on the firms financial statements in the next year? What changes would result from growing at a rate...

Clover Company plans to invest $8 million in a new product line. Clover anticipates that the product will sell for $20 per unit, variable costs will be $8 per unit, and annual fixed operating costs...

You are considering an investment in a mutual fund with a 5.5 percent front-end load. Assuming the fund return is 11 percent per year, what is your return in 1 year? 2 years? 5 years? 10 years? 20...

The managing directors of Wrack plc are considering what value to place on Trollope plc, a company which they are planning to take over in the near future. Wrack plc's share price is currently 4.21...

Gordon Supply Company manufactures high quality gardening supplies for sale primarily to nursery and landscaping companies. Gordon Supply is a business that has continued to grow because of its...

Intermediate: Present value of purchasing or renting machinery The Portsmere Hospital operates its own laundry. Last year the laundry processed 120 000 kilograms of washing and this year the total is...

At one time, the Coca-Cola Company reported a number called" economic profit" that is very similar to residual operating income. It also reported free cash flow in its annual summary of selected...

Role of economic value and replacement value (This problem requires understanding of the concept of present values) "To me, economic value is the only justifiable basis for measuring plant assets for...

Develop cost functions for the PROJECT, UNION, INTERSECTION, SET DIFFERENCE, and CARTESIAN PRODUCT algorithms discussed in section19.4.

The DuPont story detailed at the beginning of this chapter provides key insights into the development of management accounting. In particular, we see how the structure of a business affects the kinds...

Skill acquisition plans have goals that are broken down into

TAKULAH Company is preparing budgets for the third quarter ending Sept 30, 2019. Budgeted sales for the next five (5) months are: July 22,000 units Aug 50,000 units Sept 32,000 units Oct 26,000 units...

17. Hand owns 90% of Finger. In 2015 Hand purchases Land from third parties for $500,000. On January 1, 2018 Hand sells Land to Finger for $800,000. Finger holds the Land until December 31, 2020 and...

Pam and Ray Smith need to exclude the appropriate amounts from gross income for each item listed below. Unless specifically stated otherwise, each item was received or paid during 2019. For each...

What is the potential of a copper electrode immersed in 0.0380 M in Cu (NO3)2 0.0650 M in NaCl and saturated with CuCl 0.0350 M in NaOH qnd saturated with Cu(OH)2 0.0375 M in Cu (NH3)4^2+ and 0.108 M...

How can previous decisions in lesson design and delivery be replicated to ensure continued student learning

BUS-1100-04W Contemporary American Bus BUSINESS PLAN PROJECT Part 2 (covering lessons 4-5) Your goal: To document your startup's form of ownership, industry trends, and company background. Continue...

PLEASE DONT COPY AND PASTE same answer which I uploaded before. I need another answer. If you do ,I will rate you bad. You are a venture capitalist evaluating a startup. You estimate that the company...

ormat Painter BIU - abc x, X A ay. A AaBbccb AaBbcA 1 No Spac.. Heading 1 1 Normal pard Font Paragraph Assignment 2 individual) 50 marksidue 4 June) (Bold or colour is your cho Which one of the...

Discount rate 10.0000% PV driverless car revenue share 500.0000 revenue transportation market growth rate 2019 2020 -5% 2021 3% 2022 0% 2023 0% 2024 1% 2025 2026 2% 2027 2% 2028 2% 2029 2% 2030 2% 1%...

outline the primary investment decision criteria that you will examine in evaluating your startup.

Go to the CambridgeAssociates.com website and under "Benchmarks", download the "U.S. Venture Capital 2018 Q4" report, where you can see historical data on rates of return for venture capital funds....