Amazing Company acquires a trade name from Fantastic Ltd. Amazing estimates it will receive $ 7,200 per year from the name over the next 9 years. Using a discount rate of 4%, what is the value in use to Amazing of this trade name?

Question

Quizplus · Accepted Answer

The value in use of the trade name can be calculated using the present value of an annuity formula, which is: PV = P * [(1 - (1 + r)^-n) / r], where P is the payment per period ($7,200), r is the discount rate (4% or 0.04), and n is the number of periods (9 years). Plugging these values into the formula gives: PV = $7,200 * [(1 - (1 + 0.04)^-9) / 0.04] = $53,534 (rounded to the nearest dollar).

Amazing Company Acquires a Trade Name from Fantastic Ltd