Suppose Blank Company has only one project, as forecast above, and an unlevered cost of equity of 8%. What is the value of the company?
A)$23 148.15
B)$41 666.67
C)$32 407.40
D)cannot be determined with the information given

Question

Quizplus · Accepted Answer

Using the discount rate of 8% and the forecasted cash flows, the value of the project is calculated as follows:

Year 1: $10,000 ÷ (1 + 0.08)^1 = $9,259.26 
Year 2: $15,000 ÷ (1 + 0.08)^2 = $12,963.93 
Year 3: $20,000 ÷ (1 + 0.08)^3 = $16,998.28 
Year 4: $25,000 ÷ (1 + 0.08)^4 = $19,780.14 
Year 5: $30,000 ÷ (1 + 0.08)^5 = $22,789.79

Adding up these present values gives a total enterprise value of $81,791.50. Since the company is unlevered, this would also be the value of the company. Choice C is the closest answer.

Suppose Blank Company Has Only One Project, as Forecast Above