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9. An investment, which has an expected return of 18.29 percent, is expected to make annual...

9.

An investment, which has an expected return of 18.29 percent, is expected to make annual cash flows forever. The first annual cash flow is expected in 1 year and all subsequent annual cash flows are expected to grow at a constant rate of 5.03 percent per year. The cash flow in 1 year from today is expected to be 28,390 dollars. What is the present value (as of today) of the cash flow that is expected to be made in 5 years?

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Answer #1

cash flow in year 5 = cash flow in year 1 * (1+growthrate)64

= 28390 * (1+5.03%)^4

= 34547.68

Present value = Future value/(1+i)^n

i = interest rate per period

n= number of periods

present value = 34547.68/(1+18.29%)^5

= 14916.91

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