Question

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.

Answer 1

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