1.Present value=Cash flows*Present value of discounting factor(rate%,time period)
=3227/1.09^7+3227/1.09^8+...............+3227/1.09^20
=3227[1/1.09^7+1/1.09^8+...............+1/1.09^20 ]
=3227*4.642627079
=$14981.76(Approx).
We use the formula:
A=P(1+r/100)^n
where
A=future value
P=present value
r=rate of interest
n=time period.
A =$14981.76*(1.09)^36
=$333,362.46(Approx).
2.Present value of perpetuity=Annual cash flows/discount rate
=2664/0.13
=$20492.31(Approx).
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