Question: You are trying to assess the value of a small retail store that is up for sale. The store generated a cash flow to it owner of $100,000 in the most profitable year of operation and is expected to have growth of about 5% a year in perpetuity.
If the rate of return required on this store is 10%, what would your assessment be of the value of the store?
What would the growth rate need to be to justify a price of 2.5 million for this store