Question: General Atomics has signed a development contract with the following revenues to be paid to them for the first 5 years of the project: End

General Atomics has signed a development contract with the following revenues to be paid to them for the first 5 years of the project:
End of Year: Cash Flow: (Millions)
150
255
360
465
580
After year 5, the contract calls for a 5% annual increase in revenues to be paid to General Atomics over each of the next 5 years. In other words, the Year 6 payment will be $80,000,000(1.05)= $84,000,000, Year 7= $84,000,000(1.05)= $88,200,000 and so forth through the end of Year 10. What is the PV of this contract for General Atomics?(Hint: Be careful about when the arithmetic gradient ends and the geometric gradient begins). General Atomics uses a 7% discount rate.

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!