Question: Over the next three years, a firm is expected to earn economic profits of $120,000 in the first year, $140.000 in the second year, and $1000,000 in the third year. After the end of the third year, the firm will go out of business.
a. If the risk - adjusted discount rate is 10 percent for each of the next three years. the value of the firm is $______. The firm can be sold today for a price of $________.
b. If the risk-adjusted discount rate is 8 percent for each of the next three years, the value of the firm is $______. The firm can be sold today for a price of $_______.