Consider an investment that pays $47.32 in year 1, and then stabilizes and pays $6.69 every year forever after that (the first cash flow is in year 2) This firm does not intend to grow and has an interest rate (required rate of return) of 7%. What is the present value of this investment opportunity? Give your answer to two decimals
Value of perpetuity in year 1 = Cash flow/ Required rate
=6.69/7%
=95.57
Present value of the investment = Returns/ (1+rate)^1
= (47.32+95.57)/(1+7%)^1
= $133.54
Consider an investment that pays $47.32 in year 1, and then stabilizes and pays $6.69 every...
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