discounting principle, Microeconomics

The owner of a firm Mr. Rajneesh expects to make a profit of Rs.5,50,000, Rs.6,50,000, Rs.7,50,000 and Rs.8,50,000 at the end of the 1st, 2nd, 3rd and 4th year respectively. Rajneesh believes that he will be in a position to sell the firm for Rs.32,00,000 at the end of the 4th year. Taking into consideration the likely risk and uncertainty factors, Rajneesh strongly feels that the appropriate discount rate is 15%. Calculate the value of the firm.
(The PV of Re.1 @15% at the end of the 1st, 2nd, 3rd and 4th year are:0.8696, 0.7561, 0.6575 and 0.5718 respectively).
Posted Date: 5/11/2012 7:21:28 AM | Location : United States

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