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 EOQ Model The basic inventory decision model is Economic Order Quantity or called EOQ model. This model is specified via the following equation as: Whereas:Q is

Financial Management On the other hand a financial manager has to meet the company's strategic or long term needs as long term investment are helpful to the company since:

What are the types of Money and Bank Regulations? Types of Money : a. Commodity money b. A commodity-backed money c. Fiat money Bank Regulations: a. Deposit i

#questioxcvxcvn..

A. Michael Spence An American economist who was awarded by the Nobel Memorial Prize in Economic Sciences. Spence is a lecturer of management at Stanford University in the Gradu

Characteristics of Investment - Venture Capitalists Venture capitalists, will just invest in a company whether there is a reasonable chance such the company will be successful

Acceptance Rule of IRR IRR will accept a venture if its IRR is higher than or equivalent to the minimum required rate of return such is usually the cost of finance also recogn

Question: (a) Describe the process for assigning composite and component ratings under the CAMEL rating system. (b) The IMF has developed some indicators to identify early

A firm just announced that it will cut its dividend from 4.9 dollars per share to 2.1 dollars per share at the end of this year. The dividend was expected to grow 2.7% every year b

If you inherited $ 45,000 today and invested all of it in a security that paid a 7 percent rate of return, how much would you have in 25 years?