Calculate the Present Value of a Growing Annuity Given the Following

question 119

Multiple Choice

Calculate the present value of a growing annuity given the following information: annual cash flows = $60,000; cash flow growth rate = 2 %; required rate of return = 7%; timeframe = 10 years.

• A) $456,390
• B) $466,390
• C) $476,390
• D) $486,390
• E) $496,390

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Definitions:

NPV Calculation

A method used to determine the present value of a series of future cash flows by discounting them at a specific rate.

Discount Rate

The interest rate charged to commercial banks and other financial institutions for the loans they take from the Federal Reserve's discount window.

NPV Decision

A decision-making process that involves calculating the Net Present Value of a project to determine its financial viability.

Interest Rate

The expense levied by a lender on a borrower, expressed as a percentage of the principal, for the right to use money or property.