Question

Wally, president of? Wally's Burgers, is considering franchising. He has a potential franchise agreement that would allow him to receive
11
?end-of-year payments starting one year from now. The first two payments would be
?$26 comma 00026,000
and
$ 23 comma 000$23,000
in one and two years? respectively, and then
?$18 comma 00018,000
per year after that for
99
years. If Wally requires a return of
8.1 %8.1%?,
what is the present value of this stream of cash? flows?

Answer 1

Year	Cash flow	Discount factor	Present Value
a	b	c=1.081^-a	d=b*c
1	$           26,000	0.9251	$      24,051.80
2	23,000	0.8558	19,682.33
3	18,000	0.7916	14,249.36
4	18,000	0.7323	13,181.65
5	18,000	0.6774	12,193.94
6	18,000	0.6267	11,280.24
7	18,000	0.5797	10,435.00
8	18,000	0.5363	9,653.10
9	18,000	0.4961	8,929.79
10	18,000	0.4589	8,260.68
11	18,000	0.4245	7,641.70
	Total		1,39,559.59
Thus,
Present value of this stream of cash flow is			$1,39,559.59