the question

The game unfolds in two stages. In the first stage speculators buy a business from its retiring founder. In the second stage the speculators try to make a profit by selling the business to someone who will take over and manage the business (hopefully better than the founder did). Entrepreneurs are given instructions reading: You have started a successful business. Now it is time to sell it and retire. Your business earns $5 million per year. Negotiate a sale price. It may be useful information that interest rates are 6.25%. Speculators are given instructions reading: You want to buy stock in a business and then later you will have an opportunity to sell it, maybe, at a profit. Each business earns different profit, but you have a right to know the profits of the business before you buy. Interest rates are 6.25%. The entrepreneur and speculators then negotiate a price. Considering the information given, what price should a speculator pay for this business? ___________________________________ In the second stage of the game, the speculators turn around and try to sell the business to the managers, hopefully at a profit. The crucial difference between the two stages is the profitability of the business. The managers are given instructions reading: You are in the market to purchase a business. You have such confidence in your business ability that you think you can increase its annual profits by 50%. Negotiate a purchase price. You may want to know that interest rates are 6.25%. The speculators and managers then negotiate a price. Considering the information given, what price should a manager pay for this bond? ___