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Re: Valuation
Actually, I missed out some things... I'm a bit rusty on this (I do this kind of thing all by a spreadsheet I created, so I haven't thought about it in a while)....
I forgot to include the discount factor at the end.... That is, if in year 11 the business also makes $1000 per year (and will continue to do so in the foreseeable future), then if someone expects an 8% yearly return on their investment, this could in itself be worth $12,500 to them (since 8% of $12,500 is $1000). So the total value in this case would be $10,000 (from the calculation in my previous post) + $12,500 (from the calculation above), making it $22,500. This is very simplified because I've assumed no growth and no inflation, mainly to show the principles involved.... A more realistic evaluation would take growth and inflation into account. - Dien |
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