Over the next three years, a firm is expected to earn economic profits of $120,000 in the first year, $140,000 in the second year, and $100,000 in the third year. After the end of the third year, the firm will go out of business.
a. If the risk-adjusted discount rate is 10 percent for each of the next three years, the value of the firm is $ ______________. The firm can be sold today for a price of $______________.
b. If the risk-adjusted discount rate is 8 percent for each of the next three years, the value of the firm is $ ______________. The firm can be sold today for a price of $______________.