You are tasked with providing a range of values for a startup business that is p

Question

You are tasked with providing a range of values for a startup business that is planning an IPO (Initial Public Offering). The business generated a cash flow of S60 million over the last twelve months. Management projects the cash flow to grow by 15 percent year-over-year for the next five years. Based on the current valuation of mature businesses in the industry, the business is expected to be sold for $300 million after five years and the discount rate is 10 percent. What is the current value of the startup based on the management's growth pro- jection ? Find the range of values for the business if the growth rate of cash flow could be between 10 and 20 percent.

Explanation / Answer

Hence current value of startup is $529.75 million

At 20% the business is valued as:

Hence range is $385.08 million to $529.75 million

Year cash flow Sale Total PV factor Present value 1 $    69.00 $    69.00 0.909091 $    62.73 2 $    79.35 $    79.35 0.826446 $    65.58 3 $    91.25 $    91.25 0.751315 $    68.56 4 $ 104.94 $ 104.94 0.683013 $    71.68 5 $ 120.68 $ 300.00 $ 420.68 0.620921 $ 261.21 Value $ 529.75

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