MC Qu. 6-A11 Marko, Inc. is considering the purchase of ABC Co. Marko... Marko,

Question

MC Qu. 6-A11 Marko, Inc. is considering the purchase of ABC Co. Marko...

Marko, Inc. is considering the purchase of ABC Co. Marko believes that ABC Co. can generate cash flows of $5,400, $10,400, and $16,600 over the next three years, respectively. After that time, they feel the business will be worthless. Marko has determined that a rate of return of 12 percent is applicable to this potential purchase. What is Marko willing to pay today to buy ABC Co.?

Marko, Inc. is considering the purchase of ABC Co. Marko believes that ABC Co. can generate cash flows of $5,400, $10,400, and $16,600 over the next three years, respectively. After that time, they feel the business will be worthless. Marko has determined that a rate of return of 12 percent is applicable to this potential purchase. What is Marko willing to pay today to buy ABC Co.?

Explanation / Answer

PV = 5400/1.12 + 10400/1.12^2 + 16600/1.12^3

= 24927.80

Correct option:

$24,927.80

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