A Business Has an Initial Value of £2m

question 11

Multiple Choice

A business has an initial value of £2m. In the following four years its value is assessed as £2.4m, £2.7m, £2.76m, and £2.8m. The discount rate is 15 per cent. At the end of which year should the business be sold?

• A) Year 1
• B) Year 2
• C) Year 3
• D) Year 4

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Definitions:

Operating Expenses

Costs associated with the day-to-day functions of a business, excluding the cost of goods sold.

Cost of Goods Sold

An expense reported on the income statement that represents the total cost of products or services that have been sold.

Retained Earnings

Accumulated profits of a company that are not distributed to shareholders as dividends but are reinvested in the business or held as reserves.

Retained Earnings Account

An equity account that represents the accumulated profits of a company that have not been distributed to shareholders as dividends.