Answer:
$ 48,533,333.33
Explanation:
The value of the firm now is the present value of its profits using the constant growth rate model formula as provided below:
PV of profits(value of the firm)=expected profits/(opportunity cost of funds-constant growth rate)
expected profits=current profits*(1+constant growth rate)
current profits =$1,400,000
constant growth rate=4%
expected profits=$1,400,000*(1+4%)
expected profits=$1,456,000
the opportunity cost of funds=7%
PV of profits(value of the firm)=$1,456,000/(7%-4%)
PV of profits(value of the firm)=$1,456,000/3%
PV of profits(value of the firm)=$ 48,533,333.33
