PRC-2 · Chapter 6 · Question 26 of 45
If an appraisal features an initial investment of Rs. 1,000,000 and promises a constant annual cash inflow of Rs. 150,000 for a duration of 10 years, which discounting formula is most efficient to find the PV of the inflows?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) The present value of an annuity formula
Explanation
Because the inflows are a series of constant, equal, regular periodic payments with a definitive end date (10 years), it perfectly fits the definition of an annuity, and the annuity discount formula should be applied.
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