Suppose Transitron, Inc. is about to go public with ticker TRT, and you are aske

Question

Suppose Transitron, Inc. is about to go public with ticker TRT, and you are asked for a valuation. You think the company is going to burn money quickly, with cash flows of -$5M (negative 5M) per year for the next 3 years but then the company will have cash flows of +$20M (positive 20M) each year for every year after that. The company has debt outstanding whose market value is $2M, the company has $10M in cash and 5M shares outstanding. What your target share price if the discount rate is 10%?

Possible options:

Would like to know how answer was obtained.

A. 26.91

B. 28.02

C. 29.17

D. 31.22

E. 32.34

Explanation / Answer

C. 29.17

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