Answer:
$2,100,000
Explanation:
Given:
Profit generated = $100,000
Profit growth rate = 5% per year
Discount rate = 10% per year
Now,
The present value of the future profit can be calculated using the formula as:
Present value = [tex]\frac{\textup{Current cash flow}\times\textup{(1+profit growth rate)}}{\textup{Discount rate - Growth rate}}[/tex]
or
Present value = [tex]\frac100,000\times\textup{(1+0.05)}}{\textup{0.10 - 0.05}}[/tex]
or
Present value = $2,100,000
The present value of all the shop's future profits will be $2,100,000
