Question

The present value of a perpetual cash flow of Rs.250 per year, discounted at the rate of 10% each year, is .........

Hint:

For a perpetuity, the present value is simply the annual cash flow divided by the discount rate.

Answer 1

The formula for the present value of a perpetuity is: \[ PV = \frac{C}{r} \] Where:
- \( C = 250 \) (annual cash flow),
- \( r = 0.10 \) (annual discount rate).
Step 1: Substituting the values into the formula: \[ PV = \frac{250}{0.10} = 2500 \] Thus, the present value is Rs.2500. Final Answer: \[ \boxed{2500} \]