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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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