6.34 Pipe India owns an oil pipeline which will generate Rs. 120 million of cash income in the coming year. It has a very long life with virtually negligible operating costs. The volume of oil shipped, however, will decline over time and, hence, cash flows will decrease by 3 percent per year. The discount rate is 12 percent.

a. If the pipeline is used forever, what is the present value of its cash flows?

b. If the pipeline is scrapped after 25 years, what is the present value of its cash flows?