Question

Your firm has been working on an advanced technology. This technology will be available in the near term. The firm anticipates the first annual cash flow from the technology to be $158,335, received three years from today. Subsequent annual cash flows will grow at 2.24% in perpetuity. What is the present value of the technology if the discount rate is 10.02%

Answer 1

$908,551

Step-by-step explanation:

Present value of the technology = First annual cash flow/(Discount rate-Growth rate))/Growth

Present value of the technology = ($158,335/(10.02%-2.24%))/2.24= $2,500,000

Present value of the technology = ($158,335/7.78%)/2.24

Present value of the technology = $2035154.241645244 / 2.24

Present value of the technology = $908551.000734483

Present value of the technology = $908,551