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umka2103 [35]
3 years ago
5

Marko, Inc., is considering the purchase of ABC Co. Marko believes that ABC Co. can generate cash flows of $5,200, $10,200, and

$16,400 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 14 percent is applicable to this potential purchase. What is Marko willing to pay today to buy ABC Co.
Business
1 answer:
ddd [48]3 years ago
7 0

Answer:

= $23,479.51

Explanation:

<em>The value of the investment is the sum of the present value of the future cash flows discounted at 14%.</em>

<em>                                                PV</em>

Year 1     5,200× 1.14^(-1) =  4,561.40

Year 2    10,200 × 1.14^(-2) =  7,848.57

Year 3    16,400 ×  1.14^(-3) =  11,069.53

Total amount willing to be paid

= 4,561.40 + 7,848.57 + 11,069.53

= $23,479.51

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