Question

Mark Weinstein has been working on an advanced technology in laser eye surgery. His technology will be available in the near term. He anticipates his first annual cash flow from the technology to be $178,000 received two years from today. Subsequent annual cash flows will grow at 3.8 percent in perpetuity.

What is the present value of the technology if the discount rate is 10 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Present value $

Answer 1

$262,789

Step-by-step explanation:

The computation of the present value of the technology is shown below:

Provided that

Annual cash flow generated from the technology = $178,000

Discount rate = 10%

Growth rate = 3.8%

So, the present value of the technology is

= (Annual cash flow generated from the technology) ÷ (Discount rate - growth rate) ÷ (1 + discount rate)

= ($178,000) ÷ (10% - 3.8%) ÷ (1 + 10%)

= $289,068 ÷ 1.1

= $262,789