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present value of a business

What would the present value of a business that earns the following profit be using a 5-yr life span and a 12% risk-adjusted discount rate.

yr 1 Expected profit received at end of yr $10,000?

yr 2 Expected profit received at end of yr $20,000?

yr 3 Expected profit received at end of yr $50,000?

yr 4 Expected profit received at end of yr $75,000?

yr 5 Expected profit received at end of yr $50,000?

Solution Preview

The formula of present value is
PV = profit / (1+r)^t
where r = 12% and t ...

Solution Summary

The present value of the business is determined.

$2.19