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2 October, 11:06

If a business buyer estimates that 20 percent is a reasonable rate of return for an existing business expected to produce a profit of $27,000, its capitalized value would be

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  1. 2 October, 15:00
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    To solve this problem let us recall that the formula for profit is:

    Profit = (Rate of return) * (Capital value)

    Rewriting this in terms of Capital value:

    Capital value = Profit / Rate of return

    Substituting the given values:

    Capital value = $27,000 / 0.20

    Capital value = $135,000
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