An equity analyst needs to value a regulated utility.
Question # 00709341
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Updated on: 08/04/2018 04:20 AM Due on: 08/04/2018
An equity analyst needs to value a regulated utility. The utility just went through a rate-increase process, and there will not be another rate increase in the next five years.
You have projected that the company will generate a cash flow of $87.5 million a year for the next five years, and then $95.5 million a year for the period thereafter. If the relevant discount rate is 12.5%, what is the value of the utility?
And what would be the value if you assumed that the cash flows after year 5 would grow at a constant rate of 2% indefinitely?
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Rating:
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Solution: An equity analyst needs to value a regulated utility.