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At the Beginning of 2014, Market Analysts Expect Atlantis Company

Question 27

Multiple Choice

At the beginning of 2014, market analysts expect Atlantis Company, holder of a valuable patent, to earn the following stream of economic profits over the next five years. At the end of five years, Atlantis will lose its patent protection, and analysts expect economic profit to be zero after five years.  EXpected Economic  Year  Profit2014$225,0002015$325,0002016$425,0002017$200,0002018$100,000\begin{array}{l}\begin{array} { l c} &\text { EXpected Economic }\\\text { Year } & \text { Profit} \\\hline 2014 & \$ 225,000 \\2015 & \$ 325,000 \\2016 & \$ 425,000 \\2017 & \$ 200,000 \\2018 & \$ 100,000\end{array}\end{array} If investors apply an annual risk-adjusted discount rate of 15%, the value of Atlantis Company in 2014 is $______________________, which is also the maximum price investors would be willing to pay for Atlantis Company.


A) $726,916
B) $884,912
C) $1,275,000
D) $2,215,000
E) $3,824,318

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