a.
To determine: The present value at the end of each year.
a.
Answer to Problem 25PS
The present value at the end of each year is $12.50 billion.
Explanation of Solution
Determine the present value at the end of each year
Therefore the present value at the end of each year is $12.50 billion.
b.
To determine: The present value at the end of first year if the growth rate is 4%.
b.
Answer to Problem 25PS
The present value at the end of first year if the growth rate is 4% is $25 billion.
Explanation of Solution
Determine the present value at the end of first year if the growth rate is 4%
Therefore the present value at the end of first year if the growth rate is 4% is $25 billion.
c.
To determine: The present value at the end of 20 years.
c.
Answer to Problem 25PS
The present value at the end of 20 years is $9.82 billion.
Explanation of Solution
Determine the present value at the end of 20 years
Excel Spreadsheet:
Therefore the present value at the end of 20 years is $9.82 billion.
d.
To determine: The present value if spread evenly for 20 years.
d.
Answer to Problem 25PS
The present value if spread evenly for 20 years is $10.20 billion.
Explanation of Solution
Determine the continuous compounded rate
Therefore the continuous compounded rate is 7.70%.
Determine the present value if spread evenly for 20 years
Therefore the present value if spread evenly for 20 years is $10.20 billion.
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Chapter 2 Solutions
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
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