Question
PROBLEM .On January 1, 2019 NKU2 Company projects its 2019 income (earnings) to be $100,000. The company also expects its income amount to increase by
PROBLEM
.On January 1, 2019 NKU2 Company projects its 2019 income (earnings) to be $100,000. The company also expects its income amount to increase by ten percent (10%) each year thereafter until the end of 2025. At the end of 2025 a projection also gives the terminal value of the company at $2,000,000. This terminal value represents the estimated value for the sale of the company at that time, and is a lump sum number. NKU2s weighted cost of capital is 10%. Assume the income is earned at the end of the year, and that the company has no debt. Use the discounted future income method to value NKU2 Company as of January 1, 2019. [Assume earnings are earned on the last day of the year.]
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