Calculate the present value of a growing annuity given the following information: annual cash ﬂows = $300,000; cash ﬂow growth rate = 3%; required rate of return = 10%; timeframe = 55years.

Question

Quizplus · Accepted Answer

To calculate the present value of a growing annuity, we can use the formula:

PV = C / (r - g) * (1 - (1 + g)^(n) / (1 + r)^n)

Where:
C = Annual cash flows = $300,000
r = Required rate of return = 10%
g = Cash flow growth rate = 3%
n = Timeframe = 55 years

Plugging in the values, we get:

PV = $300,000 / (0.10 - 0.03) * (1 - (1 + 0.03)^55 / (1 + 0.10)^55)
PV = $300,000 / 0.07 * (1 - 2.66)
PV = $4,170,509

Therefore, the best choice is A, as it is the only option that matches the calculated present value.

Calculate the Present Value of a Growing Annuity Given the Following