How is the capitalized value of average profits determined?

Average Profits × 100/Normal Rate of Return

The correct answer is option 3- Average Profits × 100/Normal Rate of Return.

The capitalised value of average profits is determined by multiplying the average profits by 100 and dividing the result by the normal rate of return. The normal rate of return is the expected or desired rate of return on an investment. It represents the rate of return that investors or owners would typically expect to earn from their investment in a business. By capitalizing the average profits using the normal rate of return, the aim is to determine the present value of the future stream of profits generated by the business. Multiplying the average profits by 100 converts the rate of return to a percentage. This calculation helps in estimating the value of the average profits over the long term, taking into account the expected rate of return. The resulting capitalised value of average profits forms an important component in the overall calculation of goodwill.