A small craft store located in a kiosk expects to generate annual cash flows of $6,800 for the next three years. At the end of the three years, the business is expected to be sold for $15,000. What is the value of this business at a discount rate of 15 percent

Question

Justin Daniel

Business

5 September, 04:30

A small craft store located in a kiosk expects to generate annual cash flows of $6,800 for the next three years. At the end of the three years, the business is expected to be sold for $15,000. What is the value of this business at a discount rate of 15 percent

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Answers (1)

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Moses Williams · Answer 1

The monetary value is $24,201.23

Explanation:

Giving the following information:

Cash flows:

Year 1 = $6,800

Year 2 = 6,800

Year 3 = 6,800

Year 4 = $15,000.

The discount rate is 15 percent.

We need to discount each cash flow to the present value:

PV = FV / (1+i) ^n

Year 1 = 6,800/1.15 = 5,913.04

Year 2 = 6,800/1.15^2 = 5,141.78

Year 3 = 6,800/1.15^3 = 4,471.11

Year 4 = 15,000 / 1.15^4 = 8,576.30

Total = $24,201.23