You Are Considering the Purchase of a Business That Produces

question 53

Multiple Choice

You are considering the purchase of a business that produces net cash flows of $350,000 per year in perpetuity.In a perfectly competitive market,what should be the asking price for the business if the firm's cost of capital is 15%?

• A) $350,000
• B) $3,050,000
• C) $2,333,333
• D) none of the above

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Definitions:

Money Income

The total amount of monetary earnings received by an individual or household, including wages, salaries, and other forms of income.

Satisfaction Maximization

The process of optimizing decisions or actions to achieve the highest level of satisfaction or utility.

Consumer Behavior

Consumer behavior is the study of how individuals make decisions to spend their resources on consumption-related items, including what, why, and how they buy.

Total Utility

The overall satisfaction or happiness derived from consuming a certain amount of goods or services.