g if you invest in a business that you expect that will earn profit (in thousands of dollars) of $12 by the end of the year, $17 next year, $25 the third year, and $30 the 4th year. Other investments of equal risk earn 8%. How much is this business worth today

Question

Tess Ochoa

Business

23 May, 11:23

g if you invest in a business that you expect that will earn profit (in thousands of dollars) of $12 by the end of the year, $17 next year, $25 the third year, and $30 the 4th year. Other investments of equal risk earn 8%. How much is this business worth today

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Answers (1)

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Cullen Doyle · Answer 1

PV = $67,582.58

Explanation:

Giving the following information:

Cf1 = 12,000

Cf2 = 17,000

Cf3 = 25,000

Cf4 = 30,000

Discount rate = 8%

To calculate the present value, we need to use the following formula on each cash flow:

PV = FV / (1+i) ^n

Cf1 = 12,000 / (1.08) = 11,111.11

Cf2 = 17,000/1.08^2 = 14,574.76

Cf3 = 25,000/1.08^3 = 19,845.81

Cf4 = 30,000/1.08^4 = 22,050.90

PV = $67,582.58