Chapter 6, Problem 64RE

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10th Edition

Ron Larson

ISBN: 9781305860919

Textbook Problem

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**Present Value** You are considering buying a franchise that yields a continuous flow of profit at the rate of $100,000 per year. Assuming an annual interest rate of 6% compounded continuously, what is the present value of the franchise (a) for 15 years and (b) forever?

**(a)**

To determine

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

Explanation

**Given Information:**

Provided information is:

Profit,

Interest rate is,

And time span is 15 years.

**Formula used:**

Present value of Perpetuity,

Here,

**Calculation:**

Consider the provided data,

Profit,

Interest rate is,

Interest in decimal form is:

And time span is 15 years.

Use the formula for the present value,

Substitute

**(b)**

To determine

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

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