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:

Oculus

A circular opening at the top of a dome or wall, used in architecture to let in light or air.

Renaissance

French, “rebirth.” The term used to describe the history, culture, and art of 14th- through 16th-century western Europe during which artists consciously revived the classical style.

Medici Family

A wealthy and powerful Italian family who were significant patrons of the arts and instrumental in the Renaissance's development.

Humanism

In the Renaissance, an emphasis on education and on expanding knowledge (especially of classical antiquity), the exploration of individual potential and a desire to excel, and a commitment to civic responsibility and moral duty.