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.

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.