Question

13. If a business can earn a net profit of $3000 at the end of each year over the next 8 years and

the business can be sold for B dollars at the end of the 8th year and B = “your number for

                      this course” x $2000 (e.g., if your number is 8, B = 8 x $2000 = $16000, if your number is

          25, B = 25 x $2000 = $50000) (see Question A4 if you are not sure about your number). If

          the annual discount rate is 6%, what is the present value of the business (show your B value,

          factor values and your calculation)?

Answer 1

Present value of the business =	Net profit * PVAF (6%, 8 years) + Terminal value * PVF @6% for 8 th year
				3000* 6.2098 + 16000 * .6274
				$ 28,667.80
PVAF ( 6%,10 years) =		1/(1.06)^1 + 1/1.06)^2 + 1/(1.06)^3……………. 1/(1.06)^8
				6.2098
PVF 6% at 10th year =		1/ (1.06)^8
				0.6274

Here the B value has been taken as 8 as per the question said if the b value has been taken as different then the terminal vlue will change the present value of the business is $ 28667.80