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31 December, 22:29

g if you invest in a business that you expect that will earn profit (in thousands of dollars) of $12 by the end of the year, $17 next year, $25 the third year, and $30 the 4th year. Other investments of equal risk earn 8%. How much is this business worth today

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  1. 1 January, 01:28
    0
    PV = $67,582.58

    Explanation:

    Giving the following information:

    Cf1 = 12,000

    Cf2 = 17,000

    Cf3 = 25,000

    Cf4 = 30,000

    Discount rate = 8%

    To calculate the present value, we need to use the following formula on each cash flow:

    PV = FV / (1+i) ^n

    Cf1 = 12,000 / (1.08) = 11,111.11

    Cf2 = 17,000/1.08^2 = 14,574.76

    Cf3 = 25,000/1.08^3 = 19,845.81

    Cf4 = 30,000/1.08^4 = 22,050.90

    PV = $67,582.58
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