Answer:
The present Value of the growing annuity= $1,158,092.68
Explanation:
The present value of the growing annuity is going to be computed as follows:
PV = A/(r-g) × (1- (1+g/1+r)^n)
A- annual cash flow- $87,460
g- growth rate - 6.3%
n- number of years =73
r- discount rate - 13.8%
I will break out the formula into two parts to make the workings very clear to follow. So applying this formula, we can work out the present value of the growing annuity as follows.
A/(r-g) = 87,460/(0.138-0.063) =1,166,133.33
(1- (1+g/1+r)^n) = 1- (1.063/1.138)^73 =0.9931
PV = A/(r-g) × (1- (1+g/1+r)^n)
166,133.33× 0.9931 = 1,158,092.68
The present Value of the growing annuity= $1,158,092.68
