10)
The present value of perpetuity can be calculated using the following formula: PV = A/ (r-g).
The present value of cash flows and the discount rate used can be calculated as follows:
10) Barron has bequeathed a growing perpetuity to his grandson Arron through a Trust. The...
A rich relative has bequeathed you a growing perpetuity. The first payment will occur in a year and will be $ 1 comma 000$1,000. Each year after that, you will receive a payment on the anniversary of the last payment that is nbsp 3 % 3% larger than the last payment. This pattern of payments will go on forever. Assume that the interest rate is 12 %12% per year. a. What is today's value of the bequest? b. What is...
A rich relative has bequeathed you a growing perpetuity. The first payment will occur in a year and will be $1,000. Each year after that, you will receive a payment on the anniversary of the last payment that is 2% larger than the last payment. This pattern of payments will go on forever. Assume that the interest rate is 14% per year. a. What is today's value of the bequest? b. What is the value of the bequest immediately after...
A rich relative has bequeathed you a growing perpetuity. The first payment will occur in a year and will be $4,000. Each year after that, you will receive a payment on the anniversary of the last payment that is 2% larger than the last payment. This pattern of payments will go on forever. Assume that the interest rate is 13% per year. a. What is today's value of the bequest? b. What is the value of the bequest immediately after...
A rich relative has bequeathed you a growing perpetuity. The first payment will occur in a year and will be $ 1,000. Each year after that, you will receive a payment on the anniversary of the last payment that is nbsp 7 % larger than the last payment. This pattern of payments will go on forever. Assume that the interest rate is 15 % per year. a. What is today's value of the bequest? (Round to the nearest cent.) b....
rich relative has bequeathed you a growing perpetuity. The first payment will occur in a year and will be $ 3 comma 000$3,000. Each year after that, you will receive a payment on the anniversary of the last payment that is nbsp 3 % 3% larger than the last payment. This pattern of payments will go on forever. Assume that the interest rate is 14 %14% per year. a. What is today's value of the bequest? b. What is the...
A rich relative has bequeathed you a growing perpetuity. The first payment will occur one year from now and will be $1,000. Each year after that, you will receive a payment on the anniversary of the previous payment that is 8% larger than the previous payment. This pattern of payments will go on forever. Assume that the interest rate is 12% per year. a) What is today’s value of the bequest? b) What is the value of the bequest immediately...
(1)Your firm has identified three potential investment projects. The projects and their cash flows are shown here (Project Cash Flow Today ($) Cash Flow in One Year ($)) A -10- 20 B 5 -5 C 20 -10 Suppose all cash flows are certain and the risk-free interest rate is 10%. a. What is the NPV of each project? b. If the firm can choose only one of these projects, which should it choose? c. If the firm can choose any...
Assignment (Time Value of Money) 1. What is the selling price today of a bond with a face value of $100,000,4% coupon paid annually and maturity of 10 years if market interest rates are: b. 6% c. 2% 2. In exchange for a $20,000 payment today, a well-known company will allow you to choose one of the alternatives shown in the following table, your opportunity cost is 11% Alternative Single Amount $28,000 at the end of 3 years $54,000 at...
1. Alaa works for a pharmaceutical company that has developed a new drug. The patent on the drug will last 17 years. She expects that the drug’s profits will be $2 million in its first year and that this amount will grow at a rate of 5% per year for the next 17 years. Once the patent expires, other pharmaceutical companies will be able to produce the same drug and competition will likely drive profits to zero. What is the...
CASE 20 Enron: Not Accounting for the Future* INTRODUCTION Once upon a time, there was a gleaming office tower in Houston, Texas. In front of that gleaming tower was a giant "E" slowly revolving, flashing in the hot Texas sun. But in 2001, the Enron Corporation, which once ranked among the top Fortune 500 companies, would collapse under a mountain of debt that had been concealed through a complex scheme of off-balance-sheet partnerships. Forced to declare bankruptcy, the energy firm...