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Assuming a required return of 12% : PV = ? A $25,000 annual cash flow that...

Assuming a required return of 12% : PV = ?

A $25,000 annual cash flow that begins in one year and continues for 25 years?

B. $25,000 annual cash flow that today and continues for 25 years?

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Answer #1
a) PVAF = Present Value Annuity Factor for ordinary annuity
r = rate of interest
n = no of periods
Present Value = Cash Flows *PVAF (r%, n years)
Present Value = 25000 * PVAF (12%, 25 years)
Present Value = 25000 * 7.8431
Present Value = 196077.50
b) PVAF = Present Value Annuity Factor for annuity due
r = rate of interest
n = no of periods
Present Value = Cash Flows *PVAF (r%, n years)
Present Value = 25000 * PVAF (12%, 25 years)
Present Value = 25000 * 8.7843
Present Value = 219607.50
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