Final answer:
To calculate the time between a sale and payment in terms of value, you must perform present value calculations for each time period's cash flow and then sum these values. For shares, divide the total profits' present value by the number of shares to determine price per share.
Step-by-step explanation:
Calculating Time Between Selling and Getting Paid
To calculate the time between when a sale is made and when payment is received, a business must typically consider the payment terms agreed upon with the customer. However, if you are seeking to understand the value of payments received at different times, a present value (PV) calculation is used. The present value helps determine what future cash flows are worth in today's dollars, considering a specific interest rate, often referred to as the discount rate.
You would begin by calculating the total cost for each time period. Afterward, you apply the present value formula to calculate the present discounted value (PDV) of future benefits. For amounts received at different times, each amount needs a separate PDV calculation. Given the mentioned 15% interest rate, you would calculate the PDV for each time period and then add them up to get a final answer.
For example, in the context of calculating share value based on company profits, after finding the PV of total profits, you would divide this by the number of shares to find the price per share. If the PDV of total profits is 51.3 million and there are 200 shares, you'd divide 51.3 million by 200, resulting in a price per share of approximately $256,500.