Calculate the present value of a growing annuity given the following information: annual cash flows = $60,000; cash flow growth rate = 2 %; required rate of return = 7%; timeframe = 10 years.

Question

Quizplus · Accepted Answer

The present value of a growing annuity is calculated using the following formula:PV = C * [(1 - (1 + g)^-n) / (r - g)]Where:C = annual cash flowsg = cash flow growth rater = required rate of returnn = timeframePlugging in the given values, we get:PV = 60,000 * [(1 - (1 + 0.02)^-10) / (0.07 - 0.02)]PV = 60,000 * [(1 - 0.8264) / 0.05]PV = 60,000 * [0.1736 / 0.05]PV = 60,000 * 3.472PV = $456,390Therefore, the present value of the growing annuity is $456,390.

Calculate the Present Value of a Growing Annuity Given the Following