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2. (6 pts) You start a corporation. Your idea starts to produce s1ook cash flow from assets (free cash flow at the end of second year (t-2). The companys cash flow is expected to grow at 8% from year 3 dividends to year 8, then grows by 4% annually forever after. The company pays out a the cash as after meeting debt obligations. You dont have to consid tax in this question er nnual discount rate for the company is 10%. Whats the value of the firm today? a. (2 pts) b. (2 pts) To begin production, you need s50ok immediately which you will raise by issuing bonds. You issue a 20-year bond with annual coupon payment and face value $1 million. The annual YTM for bond is 10%. What must be the annual rate of the bond? (1 pt) An investor offers to buy 20% of ownership of the firm from you at t-o, what is the lowest offer price that you are willing to accept? d. (1 pt what is the annual (compound) capital gain rate if an investor buys a share of stock from you after dividend payment year 20 and sells it after dividend payment at year23? if (Hint: you dont need to do any calculations to be able to answer this question. However, you dont know the easy way, showing your calculations gives you full credits.)
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