Maximum price investors, Atlantis will lose its patent

Maximum price investors

Assignment Help Microeconomics

Reference no: EM13142291

Question

At the beginning of 2011, market analysts expect Atlantis Company, holder of a valuable patent, to earn the following stream of economic profits over the next five years. At the end of five years, Atlantis will lose its patent protection, and analysts expect economic profit to be zero after five years.

Year		Expected Economic Profit
2011		$ 225,000
2012		$ 325,000
2013		$ 425,000
2014		$ 200,000
2015		$ 100,000

If investors apply an annual risk-adjusted discount rate of 15%, the value of Atlantis Company in 2011 is $______________________, which is also the maximum price investors would be willing to pay for Atlantis Company.

1) $726,916

2) $884,912

3) $1,275,000

4) $2,215,000

5) $3,824,318

Reference no: EM13142291

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