Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Question 2. [Total: 12 points). You own a seasonal business. The high season brings in higher revenues and has higher expenses. The low season has
Question 2. [Total: 12 points). You own a seasonal business. The high season brings in higher revenues and has higher expenses. The low season has lower revenues and lower expenses. There are two seasons per each year (high season followed by low season). The odd times, t = 1, 3, 5, 7, ... are the high seasons. The even times, t = 2, 4, 6, 8... are the low seasons. There are six months (half a year) between t= 1 and t =2 and this periodicity remains throughout the problem. There are six months (half a year) between t = 0 (now) and t = 1. The business will operate for 35 years. This means you will receive 35 high season payments and 35 low season payments. You will also incur 35 expense payments during the high season and 35 expense payments during the low season. The APR = 10%. Q2. Part 1. Revenues. The first revenue in high season, at t = 1, equals $100. The revenues grow at g = 5% between high seasons. That is, the revenues grow at 5% between t = 1 and t = 3 payments. The first revenue in low season, at t = 2, equals $50. The revenues decline by 2% between low seasons. That is, the revenues decline by 2% between t = 2 and t = 4. [2 points) What is the present value, at t = 0 of all high season revenues? Show your work. [2 points) What is the present value at t = 0 of all low season revenues? Show your work. [1 point] What is the present value (at t = 0) of all revenues? Show your work. Q2. Part 2. Expenses. The first expenses in high season, at t = 1, equal $75. The expenses grow at g = 3% between high seasons. The first expenses in low season, at t = 2, equal $40. The expenses grow at 4% between low seasons. [2 points) What is the present value, at t = 0, of all high season expenses? Show your work. [2 points] What is the present value, at t = 0, of all low season expenses? Show your work. [1 point] What is the present value (at t = 0) of all expenses? Show your work. Q2. Part 3. Value of the Business. [2 points] What is the value of this business at t = 0
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