At a discount rate of 17.50%, find the present value of a perpetual payment of $2,500 per year. If the discount rate were lowered to 8.75%, half the initial rate, what would be the value of the perpetuity?

At a discount rate of 17.50%, find the present value of a perpetual payment of $2,500 per year. If the discount rate were lowered to 8.75%, half the initial rate, what would be the value of the perpetuity?

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

ChapterA3: Time Value Of Money

Section: Chapter Questions

Problem 17E

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Question

Question content area top

Part 1

(Present value of a perpetuity) At a discount rate of

17.50%,

find the present value of a perpetual payment of

$2,500

per year. If the discount rate were lowered to

8.75%,

half the initial rate, what would be the value of the perpetuity?

Question content area bottom

Part 1

a. If the discount rate were

17.50%,

the present value of the perpetuity is

$enter your response here.

(Round to the nearest cent.)

Part 2

b. If the discount rate were lowered to

8.75%,

half the initial rate, the present value of the perpetuity is

$enter your response here.

(Round to the nearest cent.)

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