Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

please place the values into a Time value of money template provided. Put the numbers into a template. you can add more rows etc as

please place the values into a Time value of money template provided.
Put the numbers into a template. you can add more rows etc as needes.
Let's say ITech Geek Investors is considering investing in a real estate project that will generate a fixed annual cash flow of $10,000 for an indefinite period of time. Assuming a discount rate of 5%, we can calculate the present value of the perpetuity using formula (I):
PV = CF / r = $10,000 / 0.05 = $200,000
We can also calculate the present value of the first 10 years of cash flows using formula (II):
PV = sum(CF / (1 + r)^i) for i = 1 to 10
= $10,000 / (1 + 0.05)^1 + $10,000 / (1 + 0.05)^2 + ... + $10,000 / (1 + 0.05)^10
= $10,000 * (1 / 1.05 + 1 / 1.1025 + ... + 1 / 1.6289)
= $10,000 * 7.721
= $77,210
We can see that the present value of the first 10 years of cash flows is significantly less than the present value of the perpetuity. However, as we increase the number of years, the present value of the cash flows
image text in transcribed
Time Value of Money Template

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access with AI-Powered Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Advanced Accounting

Authors: Joe Hoyle, Thomas Schaefer, Timothy Doupnik

10th edition

0-07-794127-6, 978-0-07-79412, 978-0077431808

Students also viewed these Accounting questions

Question

Revenue at 5 0 5 units ? refer image

Answered: 1 week ago