Register
Mars, Inc., is considering the purchase of ABC Co. Mars believes that ABC Co. can generate cash flows of $4,800, $9,800, $5,000, and $16,000 over the next four years, respectively. After that time, they
424,688 views
14 votes
14 votes
Mars, Inc., is considering the purchase of ABC Co. Mars believes that ABC Co. can generate cash flows of $4,800, $9,800, $5,000, and $16,000 over the next four years, respectively. After that time, they feel the business will be worthless. Mars has determined that a rate of return of 10 percent is applicable to this potential purchase. What is Mars willing to pay today to buy ABC Co.?

a. $32,895.00.b. $30,600.00.c. $22,528.29.d. $25,289.18.e. $23,977.29.

User Aconcagua
by
2.4k points

1 Answer

22 votes
22 votes

Answer:

27,147.60

Step-by-step explanation:

The amount she would be willing to pay is the present value of the cash flows

Present value can be calculated using a financial calculator

Cash flow in year 1 = $4,800,

Cash flow in year 2 = $9,800,

Cash flow in year 3 = 5000

Cash flow in year 4 = 16,000

I = 10

PV =

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

User Sdfadfaasd
by
2.3k points
Ask a Question
Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.

1.6m questions

2.0m answers

Other Questions

If the rate of inflation in Japan dramatically increases while the rate of inflation in the United States remains constant, then a. the demand curve for dollars shifts to the left. b. the demand curve
The market value of the equity of Hudgins, Inc., is $582,000. The balance sheet shows $21,000 in cash and $192,000 in debt, while the income statement has EBIT of $93,000 and a total of $137,000 in depreciation
Kylie is risk averse and has $1,000 with which to make a financial investment. She has three options. Option A is a risk-free government bond that pays 5 percent interest each year for two years. Option
Elroy Rocket is entering his senior year as an accounting major and has a number of options for his summer break. His options for the 3 month break follow: (1) Work full time at a local accounting firm
In January of the current year, Dora made a gift of stock to her granddaughter. At the time of the gift, the stock was worth $15,000. Several months later in the same year after the gift, a $500 dividend
Link Copied!