311.1
1. A young man inherits $10 million. Using the $10 million, he wants to
know how much income he can generate every year forever. If he
invests the money at 8% interest per year, how much of a cash
flow can he generate forever? (1 pt)
The formula for the Present Value of a perpetuity is: PV=CF/r. We
know PV ($10million), and r (0.08), and we need to solve for CF.
So, rearranging terms: CF=PVr = $10million * (0.08)=$800,000.