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Choose business with high cash flows and amount of salary increase after 15 years

Question

1. Marko, Inc. is considering the purchase of ABC Corporation.  Marko believes that ABC 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 Corporation?

a.    $19,201.76
b.    $21,435.74
c.    $23,457.96
d.    $27,808.17
e.    $31,758.00

2. Today you earn a salary of $28,500. What will be your annual salary fifteen years from now if you earn annual raises of 3.5%?

a.    $47,035.35
b.    $47,522.89
c.    $47,747.44
d.    $48,091.91
e.    $48,201.60

Summary

These multiple choice questions belong to Finance. The first and second questions deal with cash flows, net present value and internal rate of return. While in the first question, a company wants to purchase another company because of the earnings and the second question is about annually increasing salary after 15 years with 3.5%.

 

 

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