that will pay CNY 150 in one Perpetuities nd it will continue to make payments at annual intervals thereafter, but the ayments will grow at 5% forever. What is the present value of the first CNY 150 payment if the discount 9%? How much cash will this investment pay 100 years from now? What is ent value of the 100th payment? Again, use a 9% discount rate. .What is the present value of the entire growing stream of perpetual cash Explain why the answers to parts a and b help to explain why an infinit of growing cash flows has a finite present value?

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Chapter11: Capital Budgeting Decisions
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P5-31
OE-31 Perpetuitics Yang is evaluating an investment that will pay CNY 150 in one year,
and it will continue to make payments at annual intervals thereafter, but the
payments will grow at 5% forever.
a. What is the present value of the first CNY 150 payment if the discount rate is
9%?
b. How much cash will this investment pay 100 years from now? What is the pres-
ent value of the 100th payment? Again, use a 9% discount rate.
c. What is the present value of the entire growing stream of perpetual cash flows?
d. Explain why the answers to parts a and b help to explain why an infinite stream
of growing cash flows has a finite present value?
nal Finance Problem
Transcribed Image Text:P5-31 OE-31 Perpetuitics Yang is evaluating an investment that will pay CNY 150 in one year, and it will continue to make payments at annual intervals thereafter, but the payments will grow at 5% forever. a. What is the present value of the first CNY 150 payment if the discount rate is 9%? b. How much cash will this investment pay 100 years from now? What is the pres- ent value of the 100th payment? Again, use a 9% discount rate. c. What is the present value of the entire growing stream of perpetual cash flows? d. Explain why the answers to parts a and b help to explain why an infinite stream of growing cash flows has a finite present value? nal Finance Problem
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