Question

Stuart Weddle's father is 55 years old and wants to set up a cash flow stream that would be forever. He would like to receive $15,000 every year, beginning at the end of this year. If he could invest in account earning 9 percent annually, how much would he have to invest today to receive his perpetual cash flow? (Round to the nearest dollar.)

A) $166,667
B) $200,000
C) $222,222
D) $135,200

Answer 1

To receive a perpetual cash flow of $15,000 every year at an interest rate of 9 percent annually, Stuart Weddle's father would need to invest approximately $166,667 today.

Step-by-step explanation:

To calculate the present value of a perpetual cash flow, we can use the formula:

Present Value = Cash Flow / Interest Rate

In this case, Stuart Weddle's father wants to receive $15,000 every year, beginning at the end of this year. The interest rate is 9 percent annually.

So, the present value can be calculated as follows:

Present Value = $15,000 / 0.09

Rounded to the nearest dollar, the father would need to invest approximately $166,667 today to receive his perpetual cash flow.