Question

"Joe just inherited the family business, and having no desire to run the family business, he...

"Joe just inherited the family business, and having no desire to run the family business, he has decided to sell it to an entrepreneur. In exchange for the family business, Joe has been offered an immediate payment of $100000. Joe will also receive payments of $10000 in one year, $10000 in two years, and $10000 in three years. The current market rate of interest for Joe is 10%. In terms of present value (PV), how much will Joe receive for selling the family business?Note: Express your answers in strictly numerical terms. For example, if the answer is $500, write enter 500 as an answer."

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Answer #1

Joe sell his family business

Immediately he received = $ 100000

At end of 1 year received = $ 10000

At the end of 2nd year recieved = $ 10000

At the end of 3rd year recieved = $ 10000

Interest rate =10%

year Amount recieved Present value factor

Present value (amount *pv factor)
0 100000 1 100000
1 10000 0.9090909091 9090.909091
2 10000 0.826446281 8264.46281
3 10000 0.7513148009 7513.148009
Total 124868.5199

* present value factor calculated as =1/(1+r)^n

So present value of business is $ 124868.51199

Answer = 124868.5199

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