Question 7 [5 pts]

Suppose there is a cash-generating machine that produces a cash flow every year that grows at a rate of 2% each year. You are considering purchasing this machine today. The machine has just generated a cash flow of $10, which you just missed, and will generate another one in one year from now. The discount rate applicable to this machine is 12% per year. If you wanted to buy this machine now, how much would you be willing to pay for?

Answer (show the steps/calculation toward your results):