In: Economics
The vice president has the option to purchase the company after five years. The purchase price for the company is set at 4 times earnings (profit), computed as average annual profitability over the next five years. In five years, the company is expected to be worth $5 million.
On the following graph, use the green points (triangle symbols) to plot the vice president's expected profit from buying the company, for average annual profitability levels of $0, $250,000, $500,000, $750,000, and $1,000,000.
How do you figure this out and how do you graph it?