Question
Scenario 2: You must value a perpetual lease. It will cost $100,000 each year in real termsthat is, its proceeds will not grow in real
Scenario 2: You must value a perpetual lease. It will cost $100,000 each year in real termsthat is, its proceeds will not grow in real terms, but just contractually keep pace with inflation. The prevailing interest rate is 8% per year, and the inflation rate is 2% per year forever. The first cash flow of your project next year is $100,000 quoted in todays real dollars. What is the PV of the project? (Warning: Watch the timing and amount of your first payment.). Enter your answer to the nearest dollar without the dollar sign. Example $1,534,055.65 enter as $1,534,056.
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