Question

An investment offers $10,300 per year for 14 years, with the first payment occurring one year from now. Assume the required return is 11 percent. What is the value of the investment today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g. 32.16.) Present value What would the value be if the payments occurred for 39 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Present value What would the value be if the payments occurred for 74 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g.. 32.16.) Present value$ What would the value be if the payments occurred forever? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Present value

Answer 1

Part-(a) Part-(b 11% 39 Part-(c Required return, RATE # of Years of annuity, NPER Annual receipts, PMT Lumpsum at the end, FV Cash flows type, TYPE Present Value today 11% 11% $10,300 $10,300 $10,300 $0 $0 0 $0 0 0 -0 if received at the end of each period; 1 if received at the beginning of each period $71,913.21 $92,037.36 $93,594.91 [Ref: NOTE] Present Value of perpetuity Perpetual annual cash flows/Required return Perpetual annual cash flows Required return d)Present Value of perpetuity $10,300 11% $93,636.36 [$10,300 / 11%-$10,300-0.11-$93,636.36]

NOTE Present Value today is calculated using EXCEL FUNCTION PV(rate,nper,pmt,fv,type) where rate-11%; nper-14 or 39 or 74, pmt=-10300; fv:0; type-0. Here value for pmt is negative as it denotes cash inflow; type 0 because cash received at the end of each year only 2 3 4 5 6 7 Required return, RATE 阱of Years of annuity, NPER Annual receipts, PMT Lumpsum at the end, FV Cash flows type, TYPE Present Value today Part-(a 11% 14 $10,300 $0 Part-(b 11% 39 $10,300 Part-(c) 11% 74 $10,300 $0 0 if received at the end of each period; 1 if received at the beginning of each period. -PV(B2,вз,-B4,-B5B6) -PV(C2.c3,-C4,-C5.co) -PV(D2,D3,-D4,-D5D6) [Ref: NOT