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You are preparing to pitch your company on an episode of the Dragon’s Den and need...

You are preparing to pitch your company on an episode of the Dragon’s Den and need to come up with a value for your company. One method of valuing a company is to calculate the present value of future cash flows over a period of time. You decide to value your company based on the profits of the company for the next 8 years using a discount rate of 9%. You know that this year’s profit will be $90,000 and expect the annual profit to increase by $4,000 per year. What is the company’s value? <include a cash flow diagram>

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Answer #1

Profit for this year (let it 1st year) = $90,000

Annual profit increases by = $4,000

No. of years = 8

Discount rate = 9%

Calculate the present value.

First convert the gradient series to uniform series

A = A1+G (A/G, 9%, 8)

A = $90,000 + $4,000 (3.0512) = $102,205

Present Value = A (P/A, 9%, 8)

Present Value = $102,205 (5.5348) = $565,684

Value of the company is $565,684

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