Question

You have two assets and must calculate their values today based on their different payment streams and appropriate required returns. Asset 1 has a required return of 12% and will produce a stream of $1000 at the end of each year indefinitely. Asset 2 has a required return of 15% and will produce an end-of-year cash flow of $ 9.00 in the first year, $1,200 in the second year, and $1450 in its third and final year.
1. Calculate their values.
2. Choose one of the asset and explain why you are going to choose that asset.​

Answer 1

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What is the value today of Asset 1?

is the present value of perpertual annuity which is Annuity/Discount rate

=900/.12 = $7,500

What is the value today of Asset 2?

Year Amt Recd PV=xn/(1+r)^n

1 2160 1 ,830.51

2 2700 1 ,939.10

3 1530 931.21

Value 4,700.81

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Answer 2

Answer:

$\large\green{\textsf{✩ Verified Answer ✓ }}$

What is the value today of Asset 1?

is the present value of perpertual annuity which is Annuity/Discount rate

=900/.12 = $7,500

What is the value today of Asset 2?

Year Amt Recd PV=xn/(1+r)^n

1 2160 1 ,830.51

2 2700 1 ,939.10

3 1530 931.21

Value 4,700.81

$\bf\pink{\textsf{Answered By MrAkdu}}$