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zang hao believes that if iuiga can produce the financial results above, he should be able to sell the company for $5,000,000 at the end of year 5. if he desires to make 25% return on investment, what is the maximum amount of equity that he should invest in the company? explain/justify your answer.

Sagot :

The maximum amount of equity that he should invest in the company is $15,258,789

The maximum amount of equity =Sum of the Present Value of Cash flows Present Value of cash flow,

The maximum amount of equity=(Cash flow)/((1+i)^N) ,

i=Required Return,

i=25%=0.25 ,

N=Year of Cash Flow Base Year,

N =5 years,

Cash flow=$5,000,000

Equity is equal to total means minus its total arrears. These numbers can all be set up on a company's balance distance for a company. For a homeowner, equity would exist in the valuation of the habitat less any unsettled mortgage arrears or liens.

[tex]Equity = total assets-total liabilities[/tex]

The maximum amount of equity= [tex]Cash flow *(1+i)^{N}[/tex]

                                                    = $5,000,000*[tex](1+0.25)^{5}[/tex]

                                                    =$5,000,000*3.05175

                                                    =$15,258,789

Therefore, the maximum amount of equity that he should invest in the company is $15,258,789

To know more about the amount of equity:

https://brainly.com/question/26513242

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