Use this information to answer questions (a-d). Vail Venture Investors, LLC is t

Question

Use this information to answer questions (a-d). Vail Venture Investors, LLC is trying to find the value of Black Hawk Products, Inc. Black Hawk's expected cash flow in the 1^st yr is $1 million. This cash flow will grow at an annual rate 30% for the next two yrs (2^nd & 3^rd); thereafter the growth rate will stabilize at 10% for ever. Vail investor's required rate of return for the first 3 yrs is 25% an 15% there after. a The Cash Flow in Year 4 is b The horizon or terminal value is c The going concern value of Black Hawk is What % ownership Black Hawk will have to give up if Vail Investors decide to invest $10million (use post money) valuation?

Explanation / Answer

Answer:a the cash Flow in year 4 is $1.859 million.

Answer:b The terminal value is $37.18 million

=1.859/(0.15-0.10)

=$37.18 million

Answer:c Going concern value :

Year Cash Flow ($ ) in millions 1 1 Given 2 1.3 1*1.30 3 1.69 1.3*1.30 4 1.859 1.69*1.10

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