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Discounting and investment appraisal

Question 12

Discounting perpetuities

Calculate the present values of a perpetuity that pays out $6,000 per year
starting in 1 year’s time if the discount rate is 7%.

Present value = cash flow × perpetuity factor

Present value = $6,000 × 1/0.07 = $85,714

Illustrations and further practice

Now read illustrations 7 and 8 and try TYUs 13 to 18 from Chapter 7.

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