Question

The owner of a firm expects to make a profit of $100 for each of the two years and be able to sell the firm at the end of the second year at $800. The owner of the firm believes the appropriate discount rate for the firm is 15%. What is the value of the firm?

Answer 1

PV=$100/(1+0.5)^1 +$100/(1+0.15)^2 +$800/(1+0.15)^2 =
=$86.96+$75.61+$604.91=$767.48