You are purchasing a company that has projected cash flows after taxes of $15,000, $18,000, $22,000, $35.000, and
$21,000 for Years 1 through 5. in Year 3, you will incur maintenance costs of $50,000. From Years 6 through 10, you
expect cash flows to be steady at $25,000 per year. At Year 10, you can sell the firm for $500,000.
You will pay dividends out at a growing rate of 2% each year and you will announce a $1.50/share dividend to be paid at
the end of the first year. You have 1,000 shares outstanding. Assume a discount rate of 7%
What is the maximum amount you should pay for the company? Explain your reasoning for your final valuation and any
decisions in made in your calculations. Do your analysis in Excel and email the file with your answer, any assumptions or
reasoning, and your calculations.
Sample Solution
