Question

Mark Weinstein has been working on an advanced technology in laser eye surgery. His technology will be available in the near term. He anticipates his first annual cash flow from the technology to be $175,000, received two years from today. Subsequent annual cash flows will grow at 3.8 percent in perpetuity. What is the present value of the technology if the discount rate is 9.7 percent? 27. Perpetuities A prestigious i

Answer 1

Answer:

PV = 2,464,749.47

Explanation:

Perptuities = ammount/ (rate - growth)

175,000/(0.097-0.038) = $2,966,101.695

This value is two years from the present day.

Notice: "it will be received two years from today"

So we need to adjusted to bring it to present

$\frac{Principal}{(1 + rate)^{time} } = PV$

$\frac{2,966,101.695}{(1 + 0.097)^{2} } = PV$

PV = 2,464,749.47