Homework Answers
| As per discounted cash flow method, | |||||||||||||
| Present value of future cash flows | = | C1/(Ke-g) | Where, | ||||||||||
| = | 9975/(0.10-0.06) | C1 | Cash flow of year 1 | $ 9,975.00 | |||||||||
| = | $ 2,49,375.00 | Ke | Expected rate of return | 10% | |||||||||
| g | Growth rate in cash flows | 6% | |||||||||||
| Thus, | |||||||||||||
| Value of prize today is | $ 2,49,375.00 | ||||||||||||
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