Question

a. A consulting firm that is for sale has an annual operating cash flow of $2,000,000 assuming no future growth in cash flow, what is the value of this business at a 50% cost of capital.

Answer 1

Answer: $4,000,000

Explanation:

Based on the information given in the question, the value of this business at a 50% cost of capital will be calculated thus:

= Annual cash flow / Cost of capital

= $2,000,000 / 50%

= $2,000,000 / 0.5

= $4,000,000

Therefore, the value of the business is $4,000,000.