Estimate a Venture's Terminal Value Based on the Following Information

question 6

Multiple Choice

Estimate a venture's terminal value based on the following information: current year's net sales = $500,000; next year's expected cash flow = $16,000; constant future growth rate = 10%; and venture investors' required rate of return = 20%.

• A) $156,846
• B) $285,714
• C) $200,000
• D) $150,000
• E) $160,000

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Definitions:

Interest

The cost of borrowing money or the income earned from lending money, usually calculated as a percentage of the principal amount.

Forward Contract

A bespoke arrangement between two parties for acquiring or disposing of an asset at a designated price on an upcoming date.

Hedge

An investment made to reduce the risk of adverse price movements in an asset.

Speculative Forward Contract

A financial derivative used to speculate on the future price of an asset, involving an agreement to buy or sell the asset at a future date for a price determined today.