Marko, Inc., is considering the purchase of ABC Co. Marko believes that ABC Co. can generate cash flows of $5,000, $10,000, and $16,200 over the next three years, respectively. After that time, they feel the business will be worthless. Marko has determined that a rate of return of 12 percent is applicable to this potential purchase. What is Marko willing to pay today to buy ABC Co.?

Marko, Inc., is considering the purchase of ABC Co. Marko believes that ABC Co. can generate cash flows of $5,000, $10,000, and $16,200 over the next three years, respectively. After that time, they feel the business will be worthless. Marko has determined that a rate of return of 12 percent is applicable to this potential purchase. What is Marko willing to pay today to buy ABC Co.?

Multiple Choice

Top of Form

$33,852.00

$22,308.06

$23,967.06

Correct

$31,200.00

$25,378.77

Bottom of Form

Explanation

PV = $5,000/(1 + .12) + $10,000/(1.12)² + $16,200/(1.12)³ = $23,967.06
 

CFo	$0
C01	$5,000
F01	1
C02	$10,000
F02	1
C03	$16,200
F03	1
I = 12
NPV CPT
$23,967.06