P6-46 (similar to) Question Help * (Present value of a growing perpetuity) As a
ID: 2814850 • Letter: P
Question
P6-46 (similar to) Question Help * (Present value of a growing perpetuity) As a result of winning the Gates Energy Innovation Award, you are awarded a growing perpetuity. The first payment will occur in a year and will be for $20,000. You will continue receiving monetary awards annually with each award increasing by 5 percent over the previous award, and these monetary awards will continue forever. If the appropriate interest rate is 12 percent, what is the present value of this award? The present value of the award is $ (Round to the nearest cent)Explanation / Answer
Current value of the perpetuity is $285714.29
--------------------------------------------------------------------------------------------------------------------------
This is a case of growing perpetuity
PV of growing perpetuity = annual dividend/ (required rate – dividend growth rate)
= 20000/ (.12 – 0.05)
= 20000/ 0.07
= $285714.29
--------------------------------------------------------------------------------------------------------------------------
Feel free to comment if you need further assistance J
Pls rate this answer if you found it useful.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.