Over the next three years, a firm is expected to earn economic profits of $120,000 in the first year, $140,000 in the second year, and $1,000,000 in the third year. After the end of the third year, the firm will go out of business.a. If the risk-adjusted discount rate is 10 percent for each of the next three years, the value of the firm is $_______. The firm can be sold today for a price of $_________.b. If the risk-adjusted discount rate is 8 percent for each of the next three years, the value of the firm is $_______. The firm can be sold today for a price of $_______.

Answered: 140.000 in the second year, and…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Over the next three years, a firm is expected to earn economic profits of $120,000 in the first year, $140,000 in the second year, and $1,000,000 in the third year. After the end of the third year, the firm will go out of business.

a. If the risk-adjusted discount rate is 10 percent for each of the next three years, the value of the firm is $_______. The firm can be sold today for a price of $_________.

b. If the risk-adjusted discount rate is 8 percent for each of the next three years, the value of the firm is $_______. The firm can be sold today for a price of $_______.

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An economic benefit or loss is the distinction between the income got from the sale of a yield and the expenses of all data sources utilized, just as any opportunity cost. In ascertaining monetary benefit, opportunity costs and explicit expenses are deducted from incomes acquired.

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