Need help You want to purchase a business with thefollowing cash flows.Year 1 $100,000-Year 2 $150,000-Year 3 $200,000-Year 4 $250,000-How much would you pay for this business todayassuming you need a 14% return to make thisdeal?

Explanation; To determine the appropriate price to pay for a business given future cash flows, one…

Answered: You want to purchase a business with…

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter16: Statement Of Cash Flows

Section: Chapter Questions

Problem 5TP: If you had $100,000 available for investing, which of these companies would you choose to invest...

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3. Isabel is considering opening a new business. To start her business, she will have to borrow money at a real interest rate of 5% and will have expenses in developing the business for several years. She will then receive profits for several more years. The table below gives her year by year cash flow in real dollars. Assume cash flows occur at the beginning of each year. Year 1 2 3 4 5 6 7 8 Cash flow -20 -10 -5 6 5 8| 4 10 (a) Find the net present value of the Isabel's business opportunity. Should Isabel make this investment? (b) If Isabel makes this investment, how much money will she have at the end of year 8? Does this calculation change your opinion on whether Isabel should make the investment? Why or why not? (c) Would increasing the interest rate make Isabel more or less likely to open this business? Explain briefly.

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You want to purchase a business with the following cash flows. Year 1 $100,000 - Year 2 $150,000 - Year 3 $200,000 - Year 4 $250,000 - How much would you pay for this business today assuming you need a 14% return to make this deal?