In: Finance
At a discount rate of 11.00%, find the present value of a perpetual payment of $6,500 per year. If the discount rate were lowered to 5.50%, half the initial rate, what would be the value of the perpetuity?
a. If the discount rate were 11.00%, the present value of the perpetuity is (Round to the nearest cent )
Present value of perpetuity=Annual cash flows/discount rate
1.Present value=(6500/0.11)=$59090.91(Approx).
2.Present value=(6500/0.055)=$118,181.82(Approx).