Growing Annuity: Wilbon Corp

question 6

Multiple Choice

Growing annuity: Wilbon Corp. 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 percent growth for the last several years. Wilbon Corp. 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 percent, 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:

Egocentrism

In Piaget’s terms, the tendency to “center on oneself”—that is, to consider the world entirely in terms of one’s own point of view.

Centered On Oneself

Focused primarily on one's own needs, desires, or emotions, often to the exclusion of others.

Egocentrism

A cognitive bias in young children, and sometimes adults, where one has difficulty understanding or acknowledging perspectives other than one's own.

Decentered Thought

A cognitive ability to consider multiple aspects of a situation simultaneously, characteristic of more advanced stages of development.