So I'm trying to value a weird, very niche investment. Can't go into details, sorry, but I hope my question below is self-explanatory.
Imagine a 20-year investment which gives a company guaranteed, risk-free returns but only if the company has taxable profits. These returns are in the form of cash flows, and you get a majority of your investment back within 2-3 years. The rest of the cash flows are spread out over the 20-year period.
What discount rate would you use to value these cash flows?
Good question. I need to determine a "fair valuation" irrespective of this particular company's status. That said, this and most companies in this sector are fairly profitable, have stable revenues, and the sector is mature. But 20 years is a long time and profitability can't be a guarantee over that period.
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