Question

Andrew owns Hockey Plus, whose value is $150,000 today assuming normal growth. However, Andrew believes the value will grow at 15% per year for the next three years. He wants to take this rapid growth into consideration when valuing the business for a potential sale. Find the future value of the business in three years, then use that future value to find the present value at a rate of 6% compounded annually. $228,131.25 $178,652 $67,500 $191,543.56

Answer 1

Future value will be $228,131.25 in three years

Present value of FV = $191,543.56

Explanation:

FV = 150,000 (1 + 0.15)^3 = $228,131.25

Present value = Future value / (1+r/m)^mT

PV = 228,131.25 / (1+0.06)^3 = $191,543.56