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You have a small recycling business. A competitor has promised to buy your business any time in the next 2 years for the amount of CHF 370,000. (If you do not sell, she will probably enter the market and crash you out.)
On the other hand, you have some ideas for short-term investments in your business that could yield interesting revenue before you sell. These are your options: Option 1: Sell the business right away. Option 2: Invest CHF 36,000 now, generating CHF 47,880 in profit next year, and then sell the business at the end of next year. Option 3: Invest CHF 63,000 now, generating profits of CHF 50,400 at the end of both the first and second years, then sell the business after 2 years.
If the discount rate is 6.2%: i) What is the present value of Option 1? ii) What is the present value of Option 2? iii) What is the present value of Option 3?
Sagot :
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