If the required return is 7 percent, what is the value of the investment? (Do no
ID: 2731607 • Letter: I
Question
If the required return is 7 percent, what is the value of the investment? (Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.)
What would the value be if the payments occurred for 45 years? (Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.)
What would the value be if the payments occurred for 70 years? (Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.)
What would the value be if the payments occurred forever? (Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.)
An investment offers $5,200 per year for 20 years, with the first payment occurring one year from now.
If the required return is 7 percent, what is the value of the investment? (Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.)
Explanation / Answer
Requirement 1:
Calculation of present value if the annual receipts occur for 20 years:
Given data,
Annuity = $5200
Period = 20 years
Let Investment be x
Formula:
Present Value = Annuity (PVAF (7%, 20 years))
x = $5200 * 10.594
x = $55088.80
Present Value = $55088.80
Requirement 2:
Calculation of present value if the annual receipts occur for 45 years:
Given data,
Annuity = $5200
Period = 45 years
Let Investment be x
Formula:
Present Value = Annuity (PVAF (7%, 45 years))
x = $5200 * 13.6055
x = $70748.60
Present Value = $70748.60
Requirement 3:
Calculation of present value if the annual receipts occur for 70 years:
Given data,
Annuity = $5200
Period = 70 years
Let Investment be x
Formula:
Present Value = Annuity (PVAF (7%, 70 years))
x = $5200 * 14.1604
x = $73634.08
Present Value = $73634.08
Requirement 4:
Calculation of present value if the annual receipts occur forever:
Given data,
Annuity = $5200
Period = Forever
Let Investment be x
Formula:
Present Value = Annuity / Rate of return
= $5200 / 7%
= $74285.71
Present Value = $74285.71