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 t

Question

2 years ago

6

he 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

1 answer:

Dafna11 [192] · Answer 1 · 2022-06-02T12:17:59+03:00

Answer:

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