The Bee Family Fun Centre is for sale at an asking price of $400 000. The audited financial statements show that the business generates approximately $43 000 per year in net cash flow. You believe you could operate the business for three years and sell it for $500 000. What is the maximum amount you would be willing to pay for the business if you wished to earn at least a 10% return on your investment?

Question

Quizplus · Accepted Answer

To calculate the maximum amount we would be willing to pay for the business, we need to determine the present value of the future cash flows, including the sale of the business in three years. Using a financial calculator or spreadsheet, we would input the following values: N = 3, I/Y = 10, PMT = 43,000, FV = 500,000. Solving for PV gives us a value of $482,582. Therefore, the maximum amount we would be willing to pay for the business is $482,582.

The Bee Family Fun Centre Is for Sale at an Asking