Chapter 6, Problem 18TYS

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10th Edition

Ron Larson

ISBN: 9781305860919

Textbook Problem

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A business is expected to yield a continuous flow of profit at the rate of $600,000 per year. Assuming an annual interest rate of 5% compounded continuously, what is the present value of the business (a) for 20 years and (b) forever?

**(a)**

To determine

**To calculate:** The present value of the business if the continuous flow of profit at rate of

Explanation

**Given Information:**

Provided information is:

The profit at rate of

**Formula used:**

Present value of Perpetuity:

Here,

**Calculation:**

Recall the formula for present value.

Interest in fraction form is:

Substitute

**(b)**

To determine

**To calculate:** The present value of the business if the continuous flow of profit at rate of

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