Question
Your niece, Sally, is a lemonade stand mogul. Her lemonade stand has been the most successful in the neighborhood for the last 5 years. Shes
Your niece, Sally, is a lemonade stand mogul. Her lemonade stand has been the most successful in the neighborhood for the last 5 years. Shes ready to get out. She wants to sell her lemonade stand to her younger sister, Sarah. Her younger sister contracts you, the business major, to advise her in the transaction. The lemonade stand has no valuable assets, so its value is derived solely from the ability to generate cash flows. The lemonade stand had sales this year (year 0) of $265. Sales have been growing steadily, and are expected to continue growing steadily for the foreseeable future (aka, infinitely), at 5% per year. The applicable discount rate is 15%. However, Sarah doesnt have much cash and will have to finance the purchase of the lemonade stand as a 5-year annuity to Sally. How much will Sarah have to pay Sally per year over the next five years to take over the lemonade stand?
A. $830.06
B.$756.13
C.$652.14
D. $555.00
PLEASE SHOW WORK!
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