Heightened Homes is a real estate firm based in Texas. The company ensures that employees' pay is dependent on what they are cap
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Answer: Present value of the cash flows of the company is $1,158,824.
Explanation: Philips industries have the cash flow for $197,000. The industry needs to find the present value of the cash flow and the cash flows growth is decreasing every year by 6%.
The present value of the cash flows for perpetuity with decreasing growth rate is:
where, Cash flow for the year 1 (C1) = $197,000
Discount rate (r) = 11%
Growth rate (g) = -6%
Present value of the cash flows (PV) = $1,158,824
Therefore the present value of the cash flows of the company is $1,158,824.