Revision as of 18:51, 26 November 2023 by Admin (Created page with "A business has been showing a net profit of $10000 per annum (available at the end of the year) for many years. The owner feels that the business will continue to provide the same net profit forever. He offers the business for sale for the present value of its future earnings at an interest rate of 8% per annum effective. How much is the owner asking as a sale price for the business? <ul class="mw-excansopts"> <li>120,000</li> <li>125,000</li> <li>130,000</li> <li>135...")
ABy Admin
Nov 26'23
Exercise
A business has been showing a net profit of $10000 per annum (available at the end of the year) for many years. The owner feels that the business will continue to provide the same net profit forever. He offers the business for sale for the present value of its future earnings at an interest rate of 8% per annum effective.
How much is the owner asking as a sale price for the business?
- 120,000
- 125,000
- 130,000
- 135,000
- 150,000
References
Hlynka, Myron. "University of Windsor Old Tests 62-392 Theory of Interest". web2.uwindsor.ca. Retrieved November 23, 2023.
ABy Admin
Nov 26'23
Solution: B
[[math]]10000 a_{\overline{\infty} \mid .08}=10000 \frac{1}{i}=10000 \frac{1}{.08}=10000(12.5)=125000[[/math]]
References
Hlynka, Myron. "University of Windsor Old Tests 62-392 Theory of Interest". web2.uwindsor.ca. Retrieved November 23, 2023.