g If a firm can earn a profit stream of $50,000 per year for 10 years, that profit stream is worth:1) A) nothing today) less than $500,000 today, but a positive amount. C) $500,000 today. D) more than $500,000 today. E) some amount, but whether it is more, less or the same as $500,000 cannot be determined.

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Business

Rhianna Decker

13 March, 11:52

g If a firm can earn a profit stream of $50,000 per year for 10 years, that profit stream is worth:1) A) nothing today) less than $500,000 today, but a positive amount. C) $500,000 today. D) more than $500,000 today. E) some amount, but whether it is more, less or the same as $500,000 cannot be determined.

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Chris Keller · Answer 1

b) less than $500,000 today, but a positive amount.

Explanation:

By the virtue of the concepts of compounding and discounting, we understand that $1 today is worth more that $1 in the future.

Where Pv = Present value

Fv = Future value

r = discount rate

t = time

Fv = Pv (1 + r) ^t

As such If a firm can earn a profit stream of $50,000 per year for 10 years, that profit stream is worth less than $500,000 today, but a positive amount.