Question

What is the present value of a perpetual stream of cash flows that pays ​$8 comma 0008,000 at the end of year one and the annual cash flows grow at a rate of 44​% per year​ indefinitely, if the appropriate discount rate is 1515​%? What if the appropriate discount rate is 1313​%?

Answer 1

Instructions are listed below.

Step-by-step explanation:

Giving the following information:

Cash flows= $8,000

Grow at a rate of 4​% per year​ indefinitely.

We need to find the present value using the following formula:

Present Value= periodic payment/ (i - g)

i= interest rate

g= growth rate

A) Interest rate= 15%

PV= 8,000/ (0.15 - 0.04)= $72,727.27

B) i= 13%

PV= 8,000/ (0.13 - 0.04)= $88,889