Question: Q 4 and Q 5 : Annuity / Annuity due / Perpetuity: delayed first cash flow 4 . A company has a project to install

4

and Q

5

: Annuity

/

Annuity due

/

Perpetuity: delayed first cash flow

4 .

A company has a project to install a new production line. This project will finish after two years. Then the firm would anticipate the first annual cash flow from this project to be $

1

million, one year after the production line is installed. Suppose the production line will work without extra costs for

5

years, and the annual cost of capital

(r)

3.5

percent. Calculate the present value of this project.

5 .

What if the production line in Q

4

will generate the $

1

million cash flow forever?

Q4 and Q5: Annuity/Annuity due/Perpetuity: delayed first cash flow 4. A

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