Compute the present value (PV) of an annuity that pays $320 forever if the opportunity cost...
Compute the present value (PV) of an annuity that pays $320 forever if the opportunity cost is 4%. When the opportunity cost increases, do you think PV increases or decreases?
Homework Answers
| PV of perpetual CF = Perpetual CF/interest rate |
| PV of perpetual CF = 320/0.04 |
| PV of perpetual CF = 8000 |
If opportunity cost increases PV decreases
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Compute the present value (PV) of an annuity that pays $320
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