Question: What is the reasoning behind the fact that an infinite stream of cash flows has a finite present value?

What is the reasoning behind the fact that an infinite stream of cash flows has a finite present value?

Step by Step Solution

★★★★★

3.36 Rating (171 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock

The cash flows in the future are discounted for an ever increasing numbe... View full answer

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

Document Format (1 attachment)

Word file Icon

1198-B-C-F-O(1113).docx

120 KBs Word File

Students Have Also Explored These Related Corporate Finance Questions!

Q:

York Co. sells one product, which it purchases from various suppliers. York?s trial balance at December 31, 2021, included the following accounts: Sales (33,000 units @ $16)...

Q:

What is the reasoning behind the view that there is a trade-off between inflation and growth?

Q:

Answer each of the following questions about zero-base budgeting: (a) What is the reasoning behind the choice of the name zero base? (b) The zero-base approach asserts that for each budgeted...

Q:

For callable bonds, the financial press generally reports either the yield to maturity or the yield to call. Often yield to call is reported for premium bonds, and yield to maturity is reported for...

Q:

study guide assistance III Ch. 1 Corporate Finance and the Financial Manager What is the valuation principle? What does it say about evaluating costs and benefits when making a financial decision?...

Q:

What is the intuition behind the fact that an infinite stream of cash flows has a finite present value?

Q:

4. What is the intuition behind the fact that an infinite stream of cash flows has a finite present value?

Q:

What is the intuition behind the fact that an infinite stream of cash flows has a finite present value?

Q:

Which of the following explains why an infinite stream of cash flows (perpetuity) has a finite present value? Select one: A.Cash flows farther and farther in the future are discounted for so many...

Q:

(1 of 25) Which of the following statements about growing perpetuities is FALSE LOI Since there is an infinite stream of cash flows, the present value of a perpetuity is infinite o Finding the...

Q:

Question 22 4 pts Which of the following investments has a higher present value, assuming both have the same positive discount rate? Year Investment A Investment B 1 $55.000 $5,000 2 $18.000 $18,000...

Q:

Find the probability of being dealt a full house (three of one kind and two of another kind). You are dealt a hand of five cards from a standard deck of 52 playing cards.

Q:

PDQ, Inc. expects EBIT to be approximately $11 million per year for the foreseeable future, and that they have 25,000 20-year, 8 percent annual coupon bonds outstanding. What would the appropriate...

Q:

16.43 Determine i ( t ) for t > 0 in the circuit of Fig. 16.66. 12 V(+ (+1) 492 ww t=0 i(t) 5HF 53

Q:

Design the test case for the process of purchasing from ecommerce site using Test link tool template.

Q:

"Two ISO/IEC standards were completed during the last few years: a new version of 9000-3 and the TR version of 15504. Study these standards. Compare the 9000-3 requirements with the processes to be...

Q:

1. Examine and differentiate the main challenges and opportunities faced by international entrepreneurs? 2. Illustrate the environmental analysis of GCC, MENA region, and other countries? 3....

Q:

A boat having a mass of 80,000 kg rests on the bottom of the lake and displaces 12.25 m3 of water. Since the lifting capacity of the crane is only 600 kN, two balloons are attached to the sides of...

Q:

All of the following are true regarding the Qualitative Risk Analysis process except which one? A. Probability and impact and expert interview are used to help correct biases that occur in the data...

Q:

Sora Industries has 60 million outstanding shares, $120 million in debt, $40 million in cash, and the following projected free cash flow for the next four years (see MyFinanceLab for the data in...

Q:

Roybus, Inc., a manufacturer of flash memory, just reported that its main production facility in Taiwan was destroyed in a fire. Although the plant was fully insured, the loss of production will...

Q:

Ten annual returns are listed in the following table. a. What is the arithmetic average return over the ten-year period? *b. What is the geometric average return over the ten-year period? c. If you...

Q:

please answer all the parts! OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship wit cost $495 million and will operate for 20 years. OpenSeas expects annual cash flows from...

Q:

1. FM Company has two divisions: Textile (Total Capital Requirement $4,22,101 and Pharmaceutical (Total Capital Requirement = $42,210 . Each division employs debt equal to $16,000 and preferred stock...

Q:

Suppose the Japanese yen exchange rate is 84.47 = $1, and the British pound exchange rate is 1 = $1.63. (Enter your answer as directed, but do not round intermediate calculations.) Suppose the...