ACCA MA · Chapter 11 · Question 7 of 10
An investment will pay $12,000 a year in perpetuity, with the first receipt in one year's time. The discount rate is 8%. What is the present value of the perpetuity?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) $150,000
Explanation
PV of a perpetuity starting in one year = annual cash flow / discount rate = 12,000 / 0.08 = $150,000. If the first payment were received immediately, the PV would be 150,000 + 12,000 = $162,000.
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