What is the present value of a perpetual stream of cash flows that pays $5, 000 at the end of year one and the annual cash flows grow at a rate of 4% per year indefinitely, if the appropriate discount rate is 11%?

What is the present value of a perpetual stream of cash flows that pays $5, 000 at the end of year one and the annual cash flows grow at a rate of 4% per year indefinitely, if the appropriate discount rate is 11%?

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 16EB: Project Y cost $8,000 and will generate net cash inflows of $1,500 in year one, $2,000 in year two,...

See similar textbooks

Related questions

Q: An investment project has annual cash inflows of $4,000, $4,900, $6,100, and $5,300, for the next…

A: Capital budgeting decisions are taken by evaluating multiple projects and selecting the best out of…

Q: Suppose that starting a year from now you will receive $720 a year at the end of every year. If the…

A: In this question we need to calculate the Present value of perpetuity i.e. stream of cash flows…

Q: Hadji wants to find the equivalent annual cash flow for 9 years with interest rate of 15% compounded…

A: Equivalent Annual Cash Flow = PV x r / [1 - {1 / (1 + r)^n}]

Q: Suppose you expect to receive the following future cash flows at the end of the years indicated.…

A: Future value- Year FV 2 $2300 4 $5200 5 $2600 9 $8000…

Q: For what interest rate will an uniform cash flow of $30,000 per year for 20 years, (t=1 to 20) be…

A: Present value of annuity is the present value of all the stream of cash flow that occur in future.

Q: Calculate the equivalent lump-sum(total) receipt now for the following cash flows: You invest $3,000…

A: Equivalent lump sum receipt: It is the equivalent value of the lump sum received at a different…

Q: Suppose that starting one year from now you will receive $560 a year at the end of every year. If…

A: Present value of perpetuity = perpetuity amount / discount rate

Q: Calculate the present value of the following stream of cash flows: cash flows of $7,000, quarterly…

A: The present value is the value of the sum received at time 0 or the current period. It is the value…

Q: For what interest rate will an uniform cash flow of $40,000 per year for 10 years, (t=1 to 10) be…

A: The present value is the value of the sum received at time 0. It is the current value of the sum…

Q: What is the present value of a cash flow stream of $1,000 per year annually for 11 years that then…

A: Cash flow at end of 11 years = Cash flow of 11th year * (1+growth rate)/ discount rate - growth rate…

Q: A cash-flow series is increasing geometrically at the rate of 8% per year. The initial payment at…

A: Computation:

Q: What is the present value of 24 monthly cashflows of $420 each starting today if the interest rate…

A: Using excel PV function, This is question of annuity due since cashflow starting today

Q: A set of cash flows begins at $20,000 the first year, with an increase each year until n = 10 years.…

A: Information provided: Initial cashflow = $20,000 n = 10 years interest rate = 8% Present value =…

Q: Four years from now you will receive the first of ten annual $15,000 payments. Theinterest rate is…

A: The question is based on the concept of time value of money for an annuity payment of $ 15,000 start…

Q: Mr Ridzuan Azli expects to receive RM1,000 at the end of the first year and second year, RM2,000 at…

A: Hi there, Thanks for posting the question. Per Q&A guidelines, The solution for the first…

Q: Consider the following two cash flow series of payments: Series A is a geometric series increasing…

A: Total amount paid should be equal to the cost. Value of X will be equal to the sum of PV of future…

Q: What is the present value of the following cash-flow stream if the interest rate is 12%? You receive…

A: In the given question we require to calculate the present value of the stream of cashflows.

Q: The cash flow associated with a stripper oil well is expected to be $4,000 in month one, $3,925 in…

A: The question is based on the concept of Financial Management. Annuity refers to the series of…

Q: Consider a cash flow that lasts for ten years. the initial value A occurs at the third year,…

A: Present Value of series = 34,717 Interest Rate = 8% Annual Growth Rate = -6% Cash flows start at end…

Q: What is the present value of a perpetual stream of cash flows that pays $2,500 at the end of year…

A: Perpetuity is a stream of identical cash flows with no end. It is a type of payment that is both…

Q: A firm expects to make payments of 1.1, 1.5, 1.2, 1.4 and 1.9 million for a particular supply over…

A: Solution:- Present value means the value in today’s terms after discounting the future cash flows to…

Q: An investment project has annual cash inflows of $2800, $3700, $ 5100, and $4300, for the next 4…

A: Discount Rate = 9% Cash Flows: Year Cash Flow 0 -5,200 1 2,800 2 3,700 3 5,100 4…

Q: Draw the cash flow diagram for each problem and use interest rate with five decimal places. The…

A: Future value is basically calculated by compounding the present value at a given rate.

Q: You will be receiving the following cashflows: $7,000 today, $4,000 in two years, and $10,000 in…

A: Present value is the sum of future cashflows

Q: An investment project has annual cash inflows of $3,50o, $4,400, $5,600, and $4,800, for the next…

A: Therefore, the Discount payback period is 1.92 years.

Q: What uniform annual series of cash flows over a 12-year period is equivalent to an investment of…

A: PVA=PMT 1+rn-1/r (1+r)n Present value annuityFVA=PMT1+rn-1/r Future value…

Q: How much is an asset with expected annual cashflows of $19,000 for 11 years worth today, if the…

A: Present value considers the time value of money concept. It considers the discounting factor at…

Q: 3. Assume that you will receive $2,000 a year in Years 1 through 5, $3,000 a year in Years 6 through…

A: Introduction: Present Value of cash flows: It identifies today's value for the future cash flows or…

Q: Consider an EOY geometric sequence of cash flows in which the first payment made was P2,000. This is…

A: Annuity refers to a constant stream of payments made at regular intervals for a defined period. The…

Q: Find the present worth of a future payment of 100,000 to be made in 10 years with an interest of 12%…

A: The concept of TVM states that money inherently has an interest-earning capacity which makes an…

Q: What is the present value of a perpetual stream of cash flows that pays $80,000 at the end of year…

A: Year 1 cash flow (CF1) = $80,000 Growth rate (g) = 0.06 Interest rate (r) = 0.10 Present value = ?

Q: A company expects to receive the following cash flows $2,000 for the first ten years and then $3,000…

A: Present value refers to the current valuation for a future sum. Investors determine the present…

Q: Calculate the equivalent lump-sum(total) receipt now for the following cash flows: You invest $3,000…

A: In this we have to find the present value of all cash flow=

Q: 2. Mathias Company estimated that it has a 20% probability of receiving $240,000 one year from now,…

A: Present value of cash inflow means where cash inflow will be discount as per given percentage so as…

Q: A series of cash flows starts at $1,000 at the end of the first year and increases each year for the…

A: Future value of cash flow includes the deposit and plus interest accumulated over the period of…

Q: Consider two streams of cash flows, A and B. Stream A is expected to have three cash [5] flows at…

A: In order to decide which streams of income would be preferable, one need to calculate the present…

Q: What is the present value of end-of-year cash flows of $9,000 per year, with the first cash flow…

A: Cash flow: It denotes to the sum of cash that keeps flowing in the business and out of business…

Q: What amount will be the present value of the following cash flows, given that the discount rate is…

A: Present value: It can be defined as today’s worth of an investment that will be received in the…

Q: You will receive the following cash flows at the end of each year for the next 5 years. Year 1:…

A: Present value of this stream of future cash flows = Cashflow discounted at 8%

Q: What is the present worth of cash flows that begin at $30,000 and decrease at 10% per year for 5…

A: Given that , Cash flows = $30,000 no.of years (t)= 5 years interest rate (r)= 15%

Q: Consider end-of-year cash flows for $8000, $15000, $22000, $29000, and $36000 for years 1 to 5. If…

A: Cashflows: Year 1 = $8,000 ;Year 2 = $15,000; Year 3 = $22,000 ; Year 4 = $29,000; Year 5 =…

Q: What are the PW and FW of a 20-year geometric cash-flow progression increasing at 2% per year if the…

A: Present worth is the value of money today as compared to the future time. Present worth states that…

Concept explainers

Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.

Question

What is the present value of a perpetual
stream of cash flows that pays $5, 000 at the
end of year one and the annual cash flows
grow at a rate of 4% per year indefinitely, if the
appropriate discount rate is 11%?'

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

Project X costs $10,000 and will generate annual net cash inflows of $4,800 for five years. What is the NPV using 8% as the discount rate?
An investment of 1,000 produces a net cash inflow of 500 in the first year and 750 in the second year. What is the payback period? a. 1.67 years b. 0.50 year c. 2.00 years d. 1.20 years e. Cannot be determined
Project A costs $5,000 and will generate annual after-tax net cash inflows of $1,800 for five years. What is the NPV using 8% as the discount rate?
(1) What is the value at the end of Year 3 of the following cash flow stream if the quoted interest rate is 10%, compounded semiannually? (2) What is the PV of the same stream? (3) Is the stream an annuity? (4) An important rule is that you should never show a nominal rate on a time line or use it in calculations unless what condition holds? (Hint: Think of annual compounding, when INOM = EFF% = IPER.) What would be wrong with your answers to parts (1) and (2) if you used the nominal rate of 10% rather than the periodic rate, INOM/2 = 10%/2 = 5%?
Project Y cost $8,000 and will generate net cash inflows of $1,500 in year one, $2,000 in year two, $2,500 in year three, $3,000 in year four and $2,000 in year five. What is the NPV using 8% as the discount rate?
If 90,000 is invested in a fund on December 31, 2019, and 5 equal annual withdrawals of 23,138.32 are made starting on December 31, 2020, that will deplete the fund, what is the interest rate being earned if interest is compounded annually?
How much would you invest today in order to receive $30,000 in each of the following (for further Instructions on present value In Excel, see Appendix C): A. 10 years at 9% B. 8 years at 12% C. 14 years at 15% D. 19 years at 18%
Project B cost $5,000 and will generate after-tax net cash inflows of $500 in year one, $1,200 in year two, $2,000 in year three. $2,500 in year four, and $2,000 in year five. What is the NPV using 8% as the discount rate? For further instructions on net present value in Excel, see Appendix C.