You start a business that you expect will provide you with income of $92,035 per year...

You start a business that you expect will provide you with income of $92,035 per year for 16 years. Since this is a “start-up” business, it will not begin providing you income until 6 years from now. If market interest rates are 2.21% APR (compounded annually), what is the market value of this business today?

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Expert Solution

Present value=Cash flows*Present value of discounting factor(rate%,time period)

=92,035/1.0221^6+92,035/1.0221^7+92,035/1.0221^8+92,035/1.0221^9+92,035/1.0221^10+92,035/1.0221^11+92,035/1.0221^12+92,035/1.0221^13+92,035/1.0221^14+92,035/1.0221^15+92,035/1.0221^16+92,035/1.0221^17+92,035/1.0221^18+92,035/1.0221^19+92,035/1.0221^20+92,035/1.0221^21

=$1101830.77(Approx)

jeff jeffy answered 2 years ago

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