BuyFindarrow_forward

Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977

Solutions

Chapter
Section
BuyFindarrow_forward

Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977
Textbook Problem

PRESENT VALUE OF A PERPETUITY What is the present value of a $100 perpetuity if the interest rate is 7%? If interest rates doubled to 14%, what would its present value be?

Summary Introduction

To compute: Present value of $100 perpetuity, if the interest rate is 7% and 14%.

Perpetuity: It is a vital concept of corporate finance; it is that annuity, which has regular payment started on particular date and continues for indefinite period of time. It is important as it help in value of stocks, real state and other opportunities of investment.

Explanation

Solution:

Formula to calculate present value of perpetuity is,

PVPerpetuity=PMTi (I)

Here,

  • PV is present value.
  • PMT is perpetuity payment.
  • i is interest rate.

Substitute $100 for PMT 7% for i in equation (I).

PV=$1000

Still sussing out bartleby?

Check out a sample textbook solution.

See a sample solution

The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started

Additional Business Solutions

Find more solutions based on key concepts

Show solutions add

If two mutually exclusive projects were being compared, would a high cost of capital favor the longer-term or t...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)

What is a seal of assurance?

Accounting Information Systems

What is equity theory?

Foundations of Business (MindTap Course List)

Define total productive efficiency.

Cornerstones of Cost Management (Cornerstones Series)