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Homework answers / question archive / A firm's current annual profit is $320,000

A firm's current annual profit is $320,000

Economics

A firm's current annual profit is $320,000. If the profit is expected to grow at an annual rate of 2.25% and the discount rate is 3.75%, what is the value of the firm? Round your final answer to the nearest dollar.  

Group of answer choices

 

 

$21,617,336

 

$21,813,333

 

$22,467,667

 

None of the answers listed is correct.

 

$22,133,333

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Computation of Value of Firm:

Value of Firm = Current Annual Profit*(1+Growth Rate)/(Discount Rate-Growth Rate)

= $320,000*(1+2.25%)/(3.75%-2.25%)

= $327,200/1.50%

Value of Firm = $21,813,333.33 or $21,813,333

So, the correct option is 2nd "$21,813,333".

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