Determine How Much You Would Be Willing to Pay for a Security

question 32

Multiple Choice

Determine how much you would be willing to pay for a security that pays $60 annually indefinitely (a perpetuity) , assuming you require an 8 percent return on this investment.

• A)$480
• B)$743
• C)$1,000
• D)$750

---

Definitions:

Net Present Value

A method used in capital budgeting to assess the profitability of an investment or project by calculating the difference between the present value of cash inflows and outflows.

Discount Factor(s)

A numerical factor used to calculate the present value of future cash flows, reflecting how future values are worth less in today's terms.

Salvage Received

The amount of money or value received from selling or disposing of obsolete or excess inventory, equipment, or other assets.

Internal Rate Of Return

A metric used in capital budgeting to estimate the profitability of potential investments.