Question

The present value of a $20,000 perpetuity at a 7 percent discount rate is

A)

$186,915.

B)

$325,000.

C)

$140,000.

D)

$285,714.

Answer 1

The present value of a $20,000 perpetuity at a 7 percent discount rate is $285,714, making the correct answer D) $285,714.

Step-by-step explanation:

The student's question pertains to finding the present value of a perpetuity with an annual payment of $20,000 at a 7 percent discount rate. The formula for calculating the present value of a perpetuity is PV = PMT / r, where PMT is the annual payment and r is the discount rate. Therefore, the present value of this perpetuity is $20,000 / 0.07, which equals $285,714. This means the correct answer is D) $285,714.