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?

Question

Quizplus · Accepted Answer

The value of the business is the present value of the expected cash flows and the sale price. Using a discount rate of 15%, the present value of the cash flows for three years and the sale price is calculated as follows: PV = $6,800/(1+0.15)^1 + $6,800/(1+0.15)^2 + $6,800/(1+0.15)^3 + $15,000/(1+0.15)^3 = $25,388.67.

A Small Craft Store Located in a Kiosk Expects to Generate