Example of theoretical value, Finance Basics

Example of Theoretical Value

As a result of the purchase of an asset, the income stream will rise by of £1,000 per annum for 25 years.  By assuming a discount rate of 20 percent, calculate the maximum price to be paid for this asset avoiding taxation.

Solution

Maximum price = Present value of all future cash inflows

Maximum price = £10,000 x PVAF20%, 25

£10,000 x (1- (1.2)-25) / 0.20 = 10,000 x 4.9476

                                                = £49,476

During practice the income streams are never uniform and contain to be estimated from existing income indicted in the current accounts.

Posted Date: 1/31/2013 1:41:20 AM | Location : United States







Related Discussions:- Example of theoretical value, Assignment Help, Ask Question on Example of theoretical value, Get Answer, Expert's Help, Example of theoretical value Discussions

Write discussion on Example of theoretical value
Your posts are moderated
Related Questions
At t = 0, a 3-year, 7% coupon corporate bond with face value $1,000 is trading at a credit spread of 15%. The risk free rate is constant and equal to 4% for all maturities. The rec

Cost of Finance - Capital Structure This is the price the company pays to retail and acquire finance. To get finance a company will pay implicit costs that are commonly recogn

Draw the network diagram of the following project according to the activity list and relationships mentioned below Table 1 Activity Du

Dividend Ratios 1. Dividend per shares (DPS) = Earnings to ordinary shareholders/ Number of ordinary shares Specify cash returns received for all share holders. 2. Di

Factors that Influence the Cost of Finance 1. Terms of reference - if short term, the cost is generally low and vice versa. 2. Economic conditions prevailing - If a com

What are the Advantages of placement Placement has the below benefits: (i) Timing of issue is significant for successful floatation of shares. In a depressed market cond

Advantages of Bonus Matter a) Tax advantages         Shareholders can sell new shares, and create cash in form of capital gains such is tax exempt unlike cash dividends wh

EOQ Assumptions The basic EOQ model creates the following supposition as: i) The demand is identified and constant over the year ii) The ordering cost is con


Miller-Orr Model Unlike the Baumol's Model, Miller-Orr Model is a stochastic or like probabilistic model that creates the more realistic assumption of doubt in cash flows.