1. **State the problem:** Geneva Tours wants to find the maximum amount to pay today for XYZ INN, given expected income streams of RM25000, RM50000, and RM100000 over the next 4 years, with a required return of 15% per annum. 2. **Formula used:** The maximum amount to pay today is the present value (PV) of all future income streams discounted at the required return rate. The present value formula for each cash flow is: $$PV = \frac{CF}{(1 + r)^t}$$ where $CF$ is the cash flow at year $t$, $r$ is the discount rate (15% or 0.15), and $t$ is the year number. 3. **Calculate present value of each income stream:** - Year 1: $$PV_1 = \frac{25000}{(1 + 0.15)^1} = \frac{25000}{1.15}$$ - Year 2: $$PV_2 = \frac{50000}{(1 + 0.15)^2} = \frac{50000}{1.15^2}$$ - Year 3: $$PV_3 = \frac{100000}{(1 + 0.15)^3} = \frac{100000}{1.15^3}$$ 4. **Calculate each value:** - $$PV_1 = \frac{25000}{1.15} = 21739.13$$ - $$PV_2 = \frac{50000}{1.3225} = 37802.82$$ - $$PV_3 = \frac{100000}{1.520875} = 65751.31$$ 5. **Sum all present values to get maximum price:** $$PV_{total} = 21739.13 + 37802.82 + 65751.31 = 125293.26$$ **Final answer:** The maximum amount Geneva Tours should pay today is approximately **125293.26**.