Sara owns a small business and plans on retiring in 5 years. Given his past experiences, she expects that the business will be worth $1,000,000 when she retires. However, Sara is willing to sell her business today for $850,000. Assuming the business is a viable ongoing activity, would this be a good investment (for the buyer) if the discount rate at 7%? Why or why not?

SWFT Corp Partner Estates Trusts
42nd Edition
ISBN:9780357161548
Author:Raabe
Publisher:Raabe
Chapter13: Comparative Forms Of Doing Business
Section: Chapter Questions
Problem 6DQ
icon
Related questions
Question

Sara owns a small business and plans on retiring in 5 years. Given his past experiences, she expects that the business will be worth $1,000,000 when she retires. However, Sara is willing to sell her business today for $850,000. Assuming the business is a viable ongoing activity, would this be a good investment (for the buyer) if the discount rate at 7%? Why or why not?

 

Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps with 2 images

Blurred answer
Knowledge Booster
Types of business entities
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Recommended textbooks for you
SWFT Corp Partner Estates Trusts
SWFT Corp Partner Estates Trusts
Accounting
ISBN:
9780357161548
Author:
Raabe
Publisher:
Cengage
Excel Applications for Accounting Principles
Excel Applications for Accounting Principles
Accounting
ISBN:
9781111581565
Author:
Gaylord N. Smith
Publisher:
Cengage Learning
SWFT Comprehensive Vol 2020
SWFT Comprehensive Vol 2020
Accounting
ISBN:
9780357391723
Author:
Maloney
Publisher:
Cengage
SWFT Comprehensive Volume 2019
SWFT Comprehensive Volume 2019
Accounting
ISBN:
9780357233306
Author:
Maloney
Publisher:
Cengage
Pfin (with Mindtap, 1 Term Printed Access Card) (…
Pfin (with Mindtap, 1 Term Printed Access Card) (…
Finance
ISBN:
9780357033609
Author:
Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher:
Cengage Learning
CONCEPTS IN FED.TAX., 2020-W/ACCESS
CONCEPTS IN FED.TAX., 2020-W/ACCESS
Accounting
ISBN:
9780357110362
Author:
Murphy
Publisher:
CENGAGE L