Answer:
option (b) $777,930.25
Explanation:
Data provided in the question:
Profit per year = $200,000
Time = 5 years
Return, r = 9% = 0.09
Now,
Worth of business = ∑ (Cash flow × Present value factor)
also,
Present value factor = (1 + r )⁻ⁿ
here,
n is the year of cash flow
Thus,
Year Cash Flows Present value factor Present value of cash flow
0 0 1 0
1 200000 0.917 $183,486.24
2 200000 0.842 $168,336
3 200000 0.772 $154,436.70
4 200000 0.708 $141,685.04
5 200000 0.65 $129,986.28
Hence,
The business worth today is
= $183,486.24 + $168,336 + $154,436.70 + $141,685.04 + $129,986.28
= $777,930.25
Hence,
The answer is option (b) $777,930.25