(1) At this very moment, in Kailua, HI, there is a restaurant for sale. The asking price is $1,150,000. The stores gross 2021 revenue was $3,170,000, while annual cash flow (something close to profit) was said to be $725,000, and this included the lease payment on the store facility. Office furniture and store fixtures will remain, and they are said to be worth $489,000. Inventory would remain and it is valued at $10,000.

(a) Assume initially that you or your heirs could run this business forever. What is your estimate of the value of this business? Explain your answer and any assumptions you have made, especially relating to your rate of discount.

(b) Now, suppose instead that this level of profit will continue for 5 years, but no longer. What is your estimated value of the business under these circumstances? Explain your answer and make explicit any assumptions you have made. Hint/Background: Bear in mind that 80% of new restaurants go out of business within five years.