Question: suppose the Acme Medical Corp. is expecting the cash flows from 2018-2022 in the table below. After 2022 it is expecting growth in cash...

Question:

suppose the Acme Medical Corp. is expecting the cash flows from 2018-2022 in the table below. After 2022 it is expecting growth in cash flow at an annual rate of 3%. The firm has determined that its weighted average cost of capital (discount rate) is 7%. With table below:

What will be the present value of Acme's future cash flows using the discounted cash flow model?

What If the firm has 200,000 common shares outstanding, zero preferred shares, and debt with a market value of $10,000,000 what would be the value of each share?

Now suppose the discount rate increases to 10%. How would your answers to a) and b) above change based on the new discount rate?

Year

Cash flow

2018

500,000

2019

550,000

2020

620,000

2021

700,000

2022

800,000