A) Avery is about to receive FDA approval for a new testing process. If all goes well, her new process will be available soon. She anticipates her first annual cash flow from the process to be $400,000, received four years from today. Subsequent annual cash flows will grow at 5.5% in perpetuity. What is the present value of the process if the discount rate is 9 percent?
$3,315,021 (plus or minus $10)
$3,850,000 (plus or minus $10)
$7,448,618 (plus or minus $10)
$8,671,429 (plus or minus $10)
None of the above is within $10 of the correct answer.
B) Sims plans to save $62,000 per year in his retirement account for 4 years. His first contribution to his retirement account is expected in 1 year. Sims plans to retire in 4 years, immediately after making the last $62,000 contribution to his retirement account. In retirement, Sims plans to make equal withdrawals for 5 years. How much can Sims expect to withdraw each year in retirement if he expects to earn 16.8 percent in his retirement account, he makes annual withdrawals in retirement, and his first withdrawal is made immediately after he retires?
A. $84,652 (plus or minus $10)
B. $98,873 (plus or minus $10)
C. $115,484 (plus or minus $10)
D. $75,411 (plus or minus $10)
E. None of the above is within $10 of the correct answer