Calculate the Present Value of a Growing Annuity Given the Following

question 102

Multiple Choice

Calculate the present value of a growing annuity given the following information: annual cash flows = $400,000; cash flow growth rate = 2%; required rate of return = 11%; timeframe = 30 years.

• A) $4,492,776
• B) $4,392,776
• C) $4,292,776
• D) $4,192,776
• E) $4,092,776

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Definitions:

Credit

The ability of a borrower to obtain funds from a lender under agreed conditions.

Required Rate

The minimum return that investors expect to earn from an investment, determining the value of an investment.

Variable Cost

Costs that vary directly with the level of production or output, such as raw materials and labor expenses, adjusting as the volume of production increases or decreases.

Credit Policy

Guidelines that a company follows to determine the creditworthiness of customers and the terms and conditions for extending credit.