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

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The present value of a growing annuity is calculated using the following formula:PV = C * [1 - (1 + g) / (1 + r)^n] / (r - g)where:C = annual cash flowg = cash flow growth rater = required rate of returnn = timeframeIn this case, we have:C = $60,000g = 2%r = 7%n = 10 yearsPlugging these values into the formula, we get:PV = $60,000 * [1 - (1 + 0.02) / (1 + 0.07)^10] / (0.07 - 0.02)= $60,000 * [1 - 0.8264 / 1.9671] / 0.05= $60,000 * [0.1736 / 0.05]= $60,000 * 3.472= $456,390Therefore, the present value of the growing annuity is $456,390.

Calculate the Present Value of a Growing Annuity Given the Following