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QUESTION
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Your friend has a business she wants you to value. The business will not generate any money for the next three years, but in the fourth year it will start turning a profit and will make a payment (the first payment) of $150,000 to the owners at the end of the fourth year. Your friend expects to be able to grow the business, and the payments made to the owners, by 4% per year forever, and the owners will receive their payments at year end. If the appropriate discount rate is 14%, what is the value of the business today?
Perpetuity PaymentRate of Return less Growth RateNumber of yearsTypePresent Value #NAME? $1,500,000.00 $150,00010%9990