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Unformatted text preview: {- " G lG)connectmcgraw-hillcom/connectlstudentﬁenormance.do?reportName:Student‘iﬁ20Performancedtsectiontd:32564888treportﬁype:singleStudentSingleAssignme t&viech Mark Weinstein has been working on an advanced technology in laser eye surgery. His technology will be available in the near term. He anticipates his ﬁrst annual cash ﬂow ﬁom the technology to be \$227,000, ,‘ received two years ﬁom today. Subsequent annual cash ﬂows will grow at 3 percent in perpetuity. l " Required: What is the present value of the technology ﬁthe discount rate is 11 percent? (Do not include the dollar sign {5}. Round your answer to 2 decimal places. le.g., 32.16)) 5 2, 550,300.31 1 0. 01% Explanau'on: This is a growing perpetuity. The present value oﬁa growing perpetuity is: P1! = C l {r — g) P1! = \$227,000 1 {0.11 — 0.03) Pit = \$2,037,500 It is important to recognize that when dealing with annuities or perpetuities, the present value equation calculates the present value one period heﬁore the ﬁrst payment. In this case, since the ﬁrst payment is in two years, we have calculated the present value one year ﬁom now. To ﬁnd the value today, we simply discount this value as a lump sum. Doing so, we ﬁnd the value oﬁthe cash ﬂow stream today is: our: own + I')l on = \$2,837,500 r {1 +0.11)1 P1! = \$2,555,305.31 erram_].doc ' ‘ smalls [jg TeamSandloLZtﬁFallnnzip ' Rellections_Report.door ' ...
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