CIMA BA2 · Chapter 12 · Question 5 of 13
An investment will pay $15,000 a year in perpetuity, with the first receipt in one year's time. The cost of capital is 8%. What is the present value of the receipts?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) $187,500
Explanation
PV of a perpetuity starting in one year = annual cash flow / cost of capital = $15,000 / 0.08 = $187,500. Adding a further $15,000 would apply only if the first receipt were today.
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