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You are an analyst for a venture capital fund.  The firm you are valuing is expected to...

You are an analyst for a venture capital fund.  The firm you are valuing is expected to have free cash flows next year of $1,000, and they are expected to grow at 4% every year forever (if they survive).  Further, using CAPM and accounting for the fees that your VC charges, the cost of capital for the firm is 23%.  What is the value of the firm, assuming it survives?

$813

$5263

$961.54

$25000
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Answer #1

value of firm = FCF next year/(Required return - growth rate)

=>

value = 1000/(0.23 - 0.04)

= 5263

hence choose second option

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