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25 March, 04:18

A small craft store located in a kiosk expects to generate annual cash flows of $6,800 for the next three years. At the end of the three years, the business is expected to be sold for $15,000. What is the value of this business at a discount rate of 15 percent

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  1. 25 March, 06:52
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    The monetary value is $24,201.23

    Explanation:

    Giving the following information:

    Cash flows:

    Year 1 = $6,800

    Year 2 = 6,800

    Year 3 = 6,800

    Year 4 = $15,000.

    The discount rate is 15 percent.

    We need to discount each cash flow to the present value:

    PV = FV / (1+i) ^n

    Year 1 = 6,800/1.15 = 5,913.04

    Year 2 = 6,800/1.15^2 = 5,141.78

    Year 3 = 6,800/1.15^3 = 4,471.11

    Year 4 = 15,000 / 1.15^4 = 8,576.30

    Total = $24,201.23
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