You are a business valuation expert employed by Martin Equity Investment Group. The owner of LV Design wants to sell his company. He has hired Martin Equity to value LV and possibly purchase LV. In your experience with valuing small family businesses, you like to assume the business will operate for exactly 10 more years earning exactly the same profit each year. While this is certainly an arbitrary decision on your part, it nonetheless has worked well for you in the past. Use the economic profit (annual, see below)and a risk-adjusted discount rate of 18 percent to account for the time value of money and to adjust for the rather risky nature of the market for identification tags. Compute the approximate value of LV Design. Please show me your computation

Additional info: The sum of the total profit for 1 year(52 weeks) is $456414.40

Done Photo (4 of 6) Managerial Economics-Thomas and Maurice.pdf 14 CHAPTER 1 Managers, Profits, and Markets Maximizing the Value of the Firm As we stressed in the preceding discussion and principle, owners of a firm, whether the shareholders of a corporation or the owner of a single proprietor- ship, are best served by management decisions that seek to maximize the profit of the firm. In general, when managers maximize economic profit, they are also maximizing the value of the firm, which is the price someone will pay for the firm. How much will someone pay for a firm? Suppose you are going to buy a business on January 1 and sell it on December 31. If the firm is going to make an economic profit of $50,000 during the year, you are willing to pay no more than $50,000 (in monthly payments matching the flow of profit) to own the firm for that year. Because other potential buyers are also willing to pay up to $50,000, the firm likely sells for very nearly or exactly the amount of the economic profit earned in a year. When a firm earns a stream of economic profit for a number of years in the fu- value of a firm ture, the value of a firm-the price for which it can be sold-is the present value The price for which the of the future economic profits expected to be generated by the firm: firm can be sold, which equals the present value of future profits. TT TT 2 Value of a firm (1 + r) (1+ r) (1 + r ) 7 ( 1 + r ) where 7, is the economic profit expected in period t, r is the risk-adjusted discount risk premium rate, and T is the number of years in the life of a firm.* Inasmuch as future profit An increase in the discount rate to is not known with certainty, the value of a firm is calculated using the profit compensate investors for expected to be earned in future periods. The greater the variation in possible future uncertainty about future profits, the less a buyer is willing to pay for those risky future profits. The risk profits. associated with not knowing future profits of a firm is accounted for by adding a risk premi premium increases the dis- count rate It received in the future, in