Growing Annuity: Wilbon Company Is Evaluating Whether It Should Take

question 31

Multiple Choice

Growing annuity: Wilbon Company is evaluating whether it should take over the lease of an ethnic restaurant in Manhattan. The current owner had originally signed a 25-year lease, of which 16 years still remain. The restaurant has been growing steadily at a 7 per cent growth for the last several years. Wilbon Company expects the restaurant to continue to grow at the same rate for the remaining lease term. Last year, the restaurant brought in net cash flows of $310,000. If the firm evaluates similar investments at 15 per cent, what is the present value of this investment? (Round to the nearest dollar.)

• A) $2,966.350
• B) $2,838,182
• C) $3,109,460
• D) $2,709,124

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Definitions:

FICA-Social Security

A U.S. government program funded by payroll taxes, providing retirement benefits, disability income, and survivor benefits.