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Rainbow [258]
3 years ago
5

You own a movie theater. The theater generates $100,000 per year in net income. This is expected to grow at 2% per year. Someone

offers to buy the theater from you. How much should you charge as the selling price of the theater?
Business
1 answer:
Flauer [41]3 years ago
5 0

Answer: $1275000

Explanation:

From the question, we are informed that a theater generates $100,000 per year in net income and it is expected to grow at 2% per year.

The selling price of the theater if someone offers to buy will be:

= net income × (1+g) / (r-g)

= $100,000 × (1 + 2%) / (10% - 2%)

= $100,000 × (1.02) / (0.08)

= $1275000

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