Cameron is going to receive an annuity for 41 years of $37,062, and Kennedy is going...

Cameron is going to receive an annuity for 41 years of $37,062, and Kennedy is going to receive a perpetuity of that same amount. If the appropriate discount rate is 8%, how much more are Kennedy's cash flows worth today than Cameron's cash flows? (Do not include the dollar sign ($). Enter rounded answer as directed, but do not use the rounded numbers in intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Expert Solution

Present value of Cameron annuity =PVA 8%,41 *CF

= 11.96723 * 37062

= 443529.48

Present value of Kennedy perpetuity = Cash Flow /rate

= 37062/.08

= $ 463275

Value of kennedy's cash flow more than cameron's cash flow = 463275 -443529.48

= $ 19745.52

**Find present value annuity factor from present value annuity table at 8% for 41 periods.

**Annuity is for a fixed period whereas perpetuity is for indefinite period .

jeff jeffy answered 1 year ago

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