The Risky Nature Of The Company

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From the calculations above we see that the risky nature of the company attracts high interest rates that result in lower net cash flows. If it was a stable business it would be paying a weighted cost of capital around 0.08% and this would save the shareholders over $30,000. On the other hand, it should strive to maintain its weighted cost of capital at 0.12, a higher weighted cost of 14% will see it loose over $13,000 in discounted cash flows. The main assumption made in this calculation was that cash flows will be growing at the rate of 20% per year. This assumption was made because the company had a capital expense of $10,000,000. This would mean that the company would be buying more assets such as servers and software that will enable…show more content…
This is possible because businesses now are going for software as a service since it is cheaper. A business can use a single license to use software in various machines. There is also the benefit of the analytics that the customers would get about the consumer behavior from using cloud computing services such as the one LivePerson offers. The other assumption made in this case is that the economic conditions that are prevailing at the moment will remain the same. That is, an experience like the one we had in the late 2000s where there was a global credit crunch will not recur in that five-year period. Customers who make their investments in oil or other volatile markets will not have their decisions to buy software as a service being affected by the prices in these markets. Inflation rates and incomes will remain stable in the near future as well. This in reality is not possible in the real world. Income for instance will affect how individuals purchase a particular service or commodity available in the market. When income earned is low, then it comes without saying that the buying capacity of such individuals will decrease thereby affecting general demand for the product or service. All this factors must play a part. Apart from economics assumptions about the industry has been made. These calculations will only be true if LivePerson’s market share does not drop as a result of aggressive actions from competitors. The competitors may also increase in the process given as
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