You are negotiating a deal to purchase a fitness center. You feel that the best way to value a firm is using yearly profits. The current owners want $1 million for the center. They let you take a look at their financial information, and you see that they see a pretty steady average of $50,000 per year. Assume a standard interest rate of 6%. Would you purchase the fitness center at the asking price?

Now, assume you have the option of buying a different fitness center with the same average profits and interest rate as the one in Problem #8. You have negotiated the price of this firm down to $800,000. Would you be willing to purchase this one?