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Perpertuity

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA BT – FIA FBT › Perpertuity

  • This topic has 1 reply, 2 voices, and was last updated 10 years ago by Ken Garrett.
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  • August 22, 2014 at 12:09 pm #191898
    Herman
    Member
    • Topics: 1
    • Replies: 0
    • ☆

    B Invest Finance is considering the purchase of a commercial building at a cost of 1.4 billion. The property would be rented immediately to tenants at annual rent of 160 million, payable in arrears in perpetuity.

    What would be the NPV of the investment, assuming the company has cost of capital of 10%

    August 22, 2014 at 3:43 pm #191917
    Ken Garrett
    Keymaster
    • Topics: 10
    • Replies: 10595
    • ☆☆☆☆☆

    Not an F1 topic, but the answer is:

    -1,400 + 160/0.1 = 200m

    (The PV of a perpetuity paid/received form time one onwards is = Annual flow/discount rate)

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