Question

An investor is considering an offer to buy equity in a start-up company. The investor will not receive in cash flows from the company until 10.00 years from today. At that time he will receive 10.00 consecutive annual payments of $52,454.00. The investor wants a 24.00% return on his investment. How much can he pay today for this opportunity to receive his return?

Answer 1

Discount rate	24.0000%
Cash flows	Year	Discounted CF= cash flows/(1+rate)^year	Cumulative cash flow
52,454.000	0	52,454.00	52,454.00
52,454.000	1	42,301.61	94,755.61
52,454.000	2	34,114.20	128,869.82
52,454.000	3	27,511.45	156,381.27
52,454.000	4	22,186.66	178,567.93
52,454.000	5	17,892.47	196,460.39
52,454.000	6	14,429.41	210,889.80
52,454.000	7	11,636.62	222,526.42
52,454.000	8	9,384.37	231,910.79
52,454.000	9	7,568.04	239,478.83

value in 10 years = 239,478.83

amount he should pay today = 239,478.83/1.24^10 = 27,864.44