A lottery winner was given a perpetual payment of $25,362. She could invest the cash flows at 7.5 percent annually. What is the present value of this perpetuity? (Round to the nearest dollar.)

Question

Quizplus · Accepted Answer

The present value of a perpetuity can be calculated by dividing the cash flow by the discount rate. In this case, the cash flow is $25,362 and the discount rate is 7.5%, or 0.075 as a decimal. So, the present value is:

PV = CF / r
PV = $25,362 / 0.075
PV = $338,160

Therefore, the answer is choice A, $338,160.

A Lottery Winner Was Given a Perpetual Payment of $25,362