Discounted Cash Flow Valuation

34. P6-37 Growing Annuity LO1 You have just won the lottery and will receive 1,000,000 in one year. You will receive payments for 30 years, which will increase 5 percent per year. The appropriate discount rate is 8 percent. Required What is the present value of your winnings HTMLCONTROL Forms.HTMLOption.1 99,377 HTMLCONTROL Forms.HTMLOption.1 19,396,894 HTMLCONTROL Forms.HTMLOption.1 44,275,729 HTMLCONTROL Forms.HTMLOption.1 18,255,900 HTMLCONTROL Forms.HTMLOption.1 19,016,563 Solution Computation of the following Present value of winnings 1000000/1.07 10000001.03/1.072 10000001.032/1.073.............10000001.0329/1.0730 This way we can find the required figure See this table now u can understand much better 1/(1r)nYearsCash flows 1Increase Rate 5 2After increase CF 123Discount Rate 8 4Present Value 341 1,000,000 1.000 1,000,000 0.926 925,925.93 2 1,000,000 1.050 1,050,000 0.857 900,205.76 3 1,000,000 1.103 1,102,500 0.794 875,200.05 4 1,000,000 1.158 1,157,625 0.735 850,888.93 5 1,000,000 1.216 1,215,506 0.681 827,253.13 6 1,000,000 1.276 1,276,282 0.630 804,273.88 7 1,000,000 1.340 1,340,096 0.583 781,932.94 8 1,000,000 1.407 1,407,100 0.540 760,212.58 9 1,000,000 1.477 1,477,455 0.500 739,095.56 10 1,000,000 1.551 1,551,328 0.463 718,565.13 11 1,000,000 1.629 1,628,895 0.429 698,604.99 12 1,000,000 1.710 1,710,339 0.397 679,199.29 13 1,000,000 1.796 1,795,856 0.368 660,332.64 14 1,000,000 1.886 1,885,649 0.340 641,990.07 15 1,000,000 1.980 1,979,932 0.315 624,157.01 16 1,000,000 2.079 2,078,928 0.292