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Zina [86]
3 years ago
7

An investment, which has an expected return of 5.9%, is expected to make annual cash flows forever. The first annual cash flow i

s expected in 1 year and all subsequent annual cash flows are expected to grow at a constant rate of 2.5% per year. We know that the cash flow expected in 1 year from today is expected to be $4,500. What is the present value (as of today) of the cash flow that is expected to be made in 3 years from today
Business
1 answer:
leonid [27]3 years ago
3 0

Answer:

$3,980.82

Explanation:

Rate per annum = 5.9%

Number of years = 3

No of compounding per annum = 1

Rate per period = 5.9%

Number of period = 3

Future value = 4500*(1+0.025)^2 = $4727.81

PV of 3 years cashflow = Fv * [1/[(1+r)^n]]

PV of 3 years cashflow = $4727.81 * [ 1 / (1+5.9%)^3]

PV of 3 years cashflow = $4727.81 * [1 / 1.059^3]

PV of 3 years cashflow = $4727.81 * 1/1.187648379

PV of 3 years cashflow = $4727.81 * 0.842000057

PV of 3 years cashflow = $3980.81628948517

PV of 3 years cashflow = $3,980.82

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Vanyuwa [196]

Answer:

Note: The full question is attached as picture below

a. Let X is denoted as company’s monthly demand, P(X=x) is denoted as the probability of the company’s monthly demand.

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