A company’s current cash flow of $12 million is expected to grow at 15 percent for the next five years, then at 10 percent for the following five years and finally at 5 percent in perpetuity. The discount rate is 10 percent.
- What is the company’s value? Show your answer using (1) a spreadsheet and (2) the relevant time-value-of-money formulas.
- What is the company’s value if it did not grow at all?
- Based on your answers to the previous two questions, what is the value of future growth opportunities? What is the value of future growth opportunities as a percentage of the company’s value?
