Estimate a venture's cash flow expected next year based on the following information:current year's net sales = $400,000; terminal value = $500,000; constant future growth rate = 10%; and venture investors' required rate of return = 20%.

Question

Quizplus · Accepted Answer

To estimate the venture's cash flow expected next year, we first need to calculate the terminal year cash flow using the constant growth rate formula:

Terminal year cash flow = (Terminal value / (1+required rate of return)^number of periods) * constant growth rate

In this case, the terminal value is $500,000, the required rate of return is 20%, the number of periods is 1, and the constant growth rate is 10%:

Terminal year cash flow = ($500,000 / (1+0.20)^1) * 0.10 = $50,000

Therefore, the estimated cash flow for next year is $50,000. Answer choice C) is correct.

Estimate a Venture's Cash Flow Expected Next Year Based on the Following