How much is Beattle willing to pay for an investment that promises to pay $80 per...

Question

Question

How much is Beattle willing to pay for an investment that promises to pay $80 per year in perpetuity if he requires a 12% return?

The answer is $666.67. I would like to see the formula(s) used and the functions on a financial calculator.

Answer 1

Answer #1

When the cash flows are in perpetuity, the following formula is used to calculate the present value or the amount willing to be paid:-

=Annual cash flows/required rate

=80/12%

=666.67

Answer 2

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