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
Basic economic order quantity (EOQ) model  This model is one of the oldest and most commonly used in inventory control. It is based on a number of assumptions:  The dem

What is a Treasury bill? How risky is it? Treasury bills are short-term debt instruments granted by the U.S. Treasury which are sold at a discount and pay face value at maturit


Define the term Placement - Methods of Floating New Issues Under this method, issue houses or brokers purchase the securities outright with the intention of placing them wi

Evaluate the probability of 10 or more customers arriving within 2 hours if on average 7 customers arrive within one hour. Customers arrive independently.

• Company X has $100,000 face value of outstanding bonds consisting of 100 $1,000 face value bonds with a 4% annual coupon and 20 years remaining until maturity. The bonds are cur

1. Using the variance-covariance matrix (∑) and the expected return vector (er) given in the appendix, calculate the set of weights that correspond to the portfolio that maximizes

Describe the duties of the financial manager in a business firm? Financial managers calculate the firm's performance, define what the financial consequences will be if the firm

What is the effective annual cost of skipping the discount and paying at the end of the net period for the following credit terms: 6/10, net 70? please show work"

Commercial Banks - Banking Institutions These are financial institutions such accept deposits of money from the universal public, safeguard the deposits and create them availa