QUESTION 42 1

Finance Aug 05, 2020

QUESTION 42 1. Aunt Clara has promised to leave you $200 a year starting next year and have it increase at 6% a year thereafter. The payments are expected to go on indefinitely. How much has Aunt Clara left you if your opportunity cost is 10 percent? ? $2,5 00 ? $3,0 00 ? $4,0 00 r $5,0 00 ? $6,0 00
1 points
QUESTION 43 1. In the above question, what is the present value of the cash flows if the first payment will be made in five years? ? $2,6 67 ? $3,0 23 ? $3,4 15 ? $4,2 12 ? $4,7

Expert Solution

42). Computation of the amount left:-

Amount left = Annual payments / (Cost of capital - Growth rate)

= $200 / (10% - 6%)

= $200 / 4%

= $5,000

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