Question

Excellent Yachting is considering acquiring Turquoise Tours. Management believes Turquoise Tours can generate cash flows of $218,000, $224,000, and $238,000 over the next three years, respectively. After that time, they feel the business will be worthless. If the desired rate of return is 14.5 percent, what is the maximum Excellent Yachting should pay today to acquire Turquoise Coast

Answer 1

Excellent Yachting will pay  $519,799.59.

What will be the calculation of resent value of a lump sum?

The calculation of the present value of a lump sum for each cashflow considering the 14.5% discount rate would be as follow:

PV=nominal value/(1+i)n

rate: 0.145

Year I,  218,000/(1+0.145)1 = PV

             = 190,393.0131

Year II,  224,000/(1+0.145)² = PV

            = 170,858.6793

Year III,  238,000/(1+0.145)³ = PV

            = 158,547.9011

By adding each PV value together, we will get 190,393.0131+170,858.6793+158,547.9011 = $519,799.59

Learn more about the PV here:-

brainly.com/question/15432294

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