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Business, 01.11.2019 04:31 zahinparvez69

Firm a is negotiating with firm b to purchase firm b and bring it into the corporate organization headed by firm a. the two firms agree to the following: firm b's average annual income is $900, to continue for 10 years after purchase. firm b's total owner's equity is $2,000. firm b's market value of net identifiable assets is $3,500. the average rate of return in b's industry is 10%. the risk adjusted rate of return for the purchase is 8%. compute the purchase price for b implied by this information. the present value of an annuity of $1 for 10 years at 8% is 6.71008, and at 10% is 6.14457.

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