Question

g if you invest in a business that you expect that will earn profit (in thousands of dollars) of $12 by the end of the year, $17 next year, $25 the third year, and $30 the 4th year. Other investments of equal risk earn 8%. How much is this business worth today

Answer 1

PV= $67,582.58

Step-by-step explanation:

Giving the following information:

Cf1= 12,000

Cf2= 17,000

Cf3= 25,000

Cf4= 30,000

Discount rate= 8%

To calculate the present value, we need to use the following formula on each cash flow:

PV= FV/(1+i)^n

Cf1= 12,000/(1.08)= 11,111.11

Cf2= 17,000/1.08^2= 14,574.76

Cf3= 25,000/1.08^3= 19,845.81

Cf4= 30,000/1.08^4= 22,050.90

PV= $67,582.58