3. Joe just inherited the family business, and having no desire to run the famil
ID: 2383652 • Letter: 3
Question
3. Joe just inherited the family business, and having no desire to run the family business, he has decided to sell it to an entrepreneur. In exchange for the family business, Joe has been offered an immediate payment of $100,000. Joe will also receive payments of $50,000 in one year, $50,000 in two years, and $75,000 in three years. The current market rate of interest for Joe is 6%.
Draw a timeline detailing Joe's cash flows from the sale of the family business. Calculate the present value of the offer.
Explanation / Answer
Present Value = 100,000 + 50,000/(1+0.06)1 + 50,000/(1+0.06)2 + 75,000/(1+0.06)3 = $254,641.08
Year Cash Flows 0 100,000 1 50,000 2 50,000 3 75,000Related Questions
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