You have invested in a diamond mine in Nigeria The mine is expected to generate nominal, after tax cash flows of 1 million per year in perpetuity at a risk adjusted discount rate of 12 5 percent per year Unfortunately, the Nigerian government requires that you leave each year 's cash flow in the Ni...

a PV 1 million 0125 8 million b The present value of an investment in the Nigerian treasury with ...

You have invested in a diamond mine in Nigeria. The mine is expected to generate nominal, after-tax

Question:

You have invested in a diamond mine in Nigeria. The mine is expected to generate nominal, after-tax cash flows of £1 million per year in at a risk-adjusted of 12.5 percent per year. Unfortunately, the Nigerian government requires that you leave each year's cash flow in the Nigerian treasury for five years after it is earned. The on five-year Nigerian bonds is 10 percent. Assume end-of-year cash flows.
a. What is the value of the diamond mine in the absence of blocked funds?
b. What is the loss in value if blocked funds earn 0 percent interest?
c. What is the loss in value if blocked funds earn 5 percent interest?
d. What is the loss in value if blocked funds earn 10 percent interest? Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal... Perpetuity
Perpetuity refers to payments that are made without an end or maturity date. A perpetuity is classified as an annuity, which is something that earns a dividend or receives a payment at a regularly scheduled interval, generally yearly. So, how...