Question

SolaWind has been working on advanced solar cell technology, which will be available for commercialization in...

SolaWind has been working on advanced solar cell technology, which will be available for commercialization in a short period. They anticipate the first after tax cash flow from the technology to be $325,000 received at the end of two years from today. Market demand is expected to result in cash flow growth at a 15% rate for two years after that. Thereafter, competitive pressures are expected to reduce long run growth to 4 percent growth, for the indefinite future. SolaWind expects to invest $2,750,000 in the venture immediately to secure these future cash flows. The WACC for this project is 14 percent. What is the value of the technology today? You should draw a timeline as part of your answer.
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Answer #1
years cashflow value as of today
0 -2750000 -2750000
1 0 0
2 325000 250076.94
3 373750 252270.60
4 429812.5 254483.50
5 412620 396855.36
6 764111.11 348118.74

In the above table cash flow has been shown as described and they are discounted to present value with a discount rate 14%. To total inflow coverted to present day= initial investment+all future cash flow converted to tady=4251805.16.

This much money is required to buy the firm today.

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