Technology Ventures: From Idea to Enterprise 4th Edition by Thomas Byers,Richard Dorf ,Andrew Nelson

Exercise 2

2 A software firm is available for purchase, but it has experienced no growth for several years. The firm provides a cash return annually before taxes and owner's salary of $100,000. It has annual sales of $1 million. As a purchaser of this firm, you select a discount rate of 14 percent. Calculate the price you would offer for the firm. Assume that you can increase and maintain a growth rate of sales and cash flow of 2 percent annually.