Calculate the Present Value of a Growing Annuity Given the Following

question 39

Multiple Choice

Calculate the present value of a growing annuity given the following information: annual cash flows = $80,000; cash flow growth rate = 3%; required rate of return = 8%; timeframe = 15 years.

• A) $804,182
• B) $814,182
• C) $824,182
• D) $834,182
• E) $844,182

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Definitions:

Direct Method

A cash flow statement approach that lists major categories of gross cash receipts and payments, providing a clearer view of a company's cash flow from operational activities.

Cash Flow Statement

A financial report that provides aggregate data regarding all cash inflows a company receives from its ongoing operations and external investment sources, as well as all cash outflows that pay for business activities and investments during a given period.

Accrual-Basis Revenues

Earnings recorded when they are earned, regardless of when the cash payment is received, under the accrual method of accounting.

Balance Sheet

An accounting statement that itemizes the assets, liabilities, and equity held by shareholders of a company on a specific date.