Dr
Subject:FinancePrice: Bought3
Dr. AB develops a new super mask. SBW Ventures values new ventures using a 40% rate of return. The expected cash flows for the super mask project by year are:
Year CF
1 -50
2 -20
3 100
4 400
5 600
a) Assume the Year 6 cash flows are $600 and is expected to be $600 in perpetuity. What valued does SBW assign to Dr. AB's super mask?
b) Assume the year 6 cash flows are $800 then grows at 8% per year in perpetuity. What valued does SBW assign to Dr. AB's super mask?
c) The assumptions in part b hold; however, SBW Venture discounts cash flows beginning at year 6 at 20% rate of return. What valued does SBW assign to Dr. AB's super mask? (hint: The ROR is still 40% for cash flows from years 1 through 5.
d) The assumptions in part c hold (i.e. assume $800 t=6 cash flows, an 8% growth rate in perpetuity from year 6, and 20% rate of return in perpetuity.) Graham Henry invests $750 in the super mask project. If SBW, Inc has funded the mask project (i.e. Graham's investment is not required to meet the CF forecast). What is Graham's ownership percentage?
