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Joined 11 months ago
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Cake day: October 31st, 2023

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  • Absolutely sell. 80k now trumps 1700 a month in basically all ways.

    No, this is wrong.

    I get that a sum of money today is worth more now than the same sum of money at a later date. But you’re neglecting that this is essentially a perpetuity and are considering the wrong values. You have to calculate the present value of the expected cash flows to correctly value that stream of income against a lump sum of $80k today.

    In perpetuity, the $1700 a month is worth somewhere between ~$102k-170k in today’s dollars, depending on the discount rate selected. A typical discount rate for a small business is between 12-20%.

    That’s making a ton of assumptions, including that the cash flow will last forever, but I think it’s difficult to say that $80k is better now than continuing to operate the business and funneling that cash into some other investments that yield a decent rate of return.

    A simpler comparison, which you could do for yourself, is to open up a spreadsheet and see what 5% interest does to 80k a year with no additional cash added to the investment over time compared to 20.4k a year every year. Somewhere around year 5, the $1700 a month compounded at 5% annually exceeds the value of 80k growing at the same rate. Note also that 5% is a relatively conservative rate of return.