Question

A firm expects to earn $10,000,000 in cash in 2018. The firm also expects to increase its cash earnings by 2% each year in perpetuity. Using a discount rate of 7.50%, what is the current value of this firm?

Answer 1

$181,818,181.82

Step-by-step explanation:

The computation of the current value of this firm is shown below:

= (Firm expectation to earns in cash) ÷ (discount rate - increased cash earning percentage)

= ($10,000,000) ÷ (7.5% - 2%)

= ($10,000,000) ÷ (5.5%)

= $181,818,181.82

In order to find out the current value, we considered all the given information that are mentioned in the question