Marko,Inc Is Considering the Purchase of ABC Co

question 103

Multiple Choice

Marko,Inc. is considering the purchase of ABC Co. Marko believes that ABC Co. can generate cash flows of $5,000,$9,000,and $15,000 over the next three years,respectively. After that time,Marko feels ABC will be worthless. Marko has determined that a 14% rate of return is applicable to this potential purchase. What is Marko willing to pay today to buy ABC Co.?

• A) $19,201.76
• B) $21,435.74
• C) $23,457.96
• D) $27,808.17
• E) $31,758.00

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Definitions:

Variable Expenses

Costs that change in proportion to the level of activity or production volume.

Break-Even Sales

The amount of revenue needed to cover all fixed and variable costs, resulting in a net income of zero.

Retail Division

A segment of a company that directly sells products to consumers, typically involving activities and costs related to retail operations.

Segmented Income Statement

An income statement that breaks down revenues, cost of sales, and expenses by segments such as product lines, departments, or geographic regions.