Question
An old-school arcade is for sale. You have gathered the following pertinent facts: (A.) the property (i.e., the land and building) is worth $500,000, the
An old-school arcade is for sale. You have gathered the following pertinent facts: (A.) the property (i.e., the land and building) is worth $500,000, the equipment and furniture are worth $100,000, its short-term assets (e.g., the inventory and supply) are $30,000, (B.) its short-term liabilities are $30,000 and it has no long-term liabilities, and (C.) the latest annual net income is $100,000. You estimate that the annual growth rate of net income will be 5% for perpetuity with a probability of 0.2, 3% with a probability of 0.7, and -2% with a probability of 0.1. The opportunity cost of your capital is 10% per annum. What is the value of this old-school arcade to you given the information above, and please explain how you would determine the value (show your calculation).
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started