If a business buyer estimates that 20 percent is a reasonable rate of return for an existing business expected to produce a profit of $27,000, its capitalized value would be:
A) $5,400.
B) $32,400.
C) $135,000.
D) $540,000.

Question

Quizplus · Accepted Answer

The capitalized value is calculated by dividing the expected profit by the rate of return. $27,000 / 0.20 = $135,000.

If a Business Buyer Estimates That 20 Percent Is a Reasonable