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Pani-rosa [81]
3 years ago
14

TH Manufacturers expects to generate cash flows of $129,600 for the next two years. At the end of the two years the business wil

l be sold for an estimated $3.2 million. What is the value of this business at a discount rate of 14 percent?
Select one:

a. $2,704,654.82
b. $2,284,644.28
c. $2,675,703.29
d. $2,848,391.60
e. $2,900,411.36
Business
1 answer:
arsen [322]3 years ago
7 0

Answer:

Vo  = <u>C1  </u>    +        <u>C2 + V2</u>

        1 + k              (1 + K)2

Vo = <u>$129,600  </u> +   <u>$129,600 + $3,200,000</u>

        1 + 0.14            (1 + 0.14)2

Vo = $113,684.21  + $2,562,019.08

Vo = $2,675,703.29

The correct answer is C

Explanation:  

The current value of the business equals cashflow in year 1 divided by 1 + K plus the aggregate of cashflow and sales value in year 2 divided by 1 + k raised to power 2.

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