For proposal 3: buy out
Tthe value of the company was calculated as follows in the suggested answer:
Estimated value based on cash flows to perpetuity = 28·4/(0·11 – 0·05) = $473·3m
The forumla looks like the normal growth model formula except the numerator isn't being multiplied by (1+g) the growth in the question was only applicable to profits before depreciation and not to the cash flow.
How did the come to this forumal from the normal growth model?
Tthe value of the company was calculated as follows in the suggested answer:
Estimated value based on cash flows to perpetuity = 28·4/(0·11 – 0·05) = $473·3m
The forumla looks like the normal growth model formula except the numerator isn't being multiplied by (1+g) the growth in the question was only applicable to profits before depreciation and not to the cash flow.
How did the come to this forumal from the normal growth model?