1. What is the present value of a perpetual stream of cash flows that pays ?$7,500 at the end of year one and the annual cash flows grow at a rate of 3?% per year? indefinitely, if the appropriate discount rate is 12?%? What if the appropriate discount rate is 10?%?
2. Your firm has taken on cost saving measures that will provide a benefit of $10,000 in the first year. These cost savings will decrease each year at a rate of 3 percent forever. If the appropriate interest rate is 6 ?percent, what is the present value of these? savings?