Question

Marko, Inc. is considering the purchase of ABC Co. Marko believes that ABC Co. can generate cash flows of $5,900, $10,900, and $17,100 over the next three years, respectively. After that time, they feel the business will be worthless. Marko has determined that a rate of return of 13 percent is applicable to this potential purchase. What is Marko willing to pay today to buy ABC Co.

Answer 1

Answer:

$25,608.70

Explanation:

We are to calculate the present value of the cash flows

Present value is the sum of discounted cash flows

present value can be calculated using a financial calculator

Cash flow in year 1 =  $5,900

Cash flow in year 2 = $10,900

Cash flow in year 3 = $17,100

I = 13%

Present value = $25,608.70

To find the PV using a financial calculator:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. after inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.  

3. Press compute