Dr. Victor Frankenstein has been developing a new operation table for advanced surgery. This new table...

Dr. Victor Frankenstein has been developing a new operation table for advanced surgery. This new table will be available to sell to the market in the near future. He expects the first annual cash flow from the technology to be $295,000, received four years from today. Subsequent annual cash flows will grow at 1.75% p.a. forever. If an appropriate discount rate is 10% p.a. compounded semi-annually, what is the value today of this new operation table?

Potential Answers:

$2,601,248.68

$2,589,806.38

$2,569,324.53

$2,698,356.87

$2,458,391.15

Expert Solution

The correct answer is 2nd option.

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The value of the operation table today is found using present value of deferred growing perpetuity.

The discount rate is compounded semi-annually, hence the effective discount rate is found as follows

Value today of the operation table = $ 2,589,806.38

jeff jeffy answered 2 years ago

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