Question 1) Given an interest rate of 10% per year, what is the value at the end of year 5 of a perpetual stream of $120 annual payments starting at the end of year 9?
Question 2) Theoretical decision to release a new revision of a book: Company estimates the new revision will cost $40,000. Cash flows from increased sales will be $10,000 in the first year. These cash flows will increase by 7% per year. The book will go out of print 5 years from now. Assume the initial cost is paid now and revenues are received at the end of each year. If the company requires a 10% return, should it undertake the revision?