Given an 8% rate, the value of a perpetuity paying $200 per year is

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Prepare for the Accounting for Planning and Control Test 1 with our comprehensive quiz. Utilize flashcards and multiple-choice questions to solidify your understanding. Each question includes hints and detailed explanations to ensure you are exam-ready!

Multiple Choice

Given an 8% rate, the value of a perpetuity paying $200 per year is

Explanation:
The central idea is that the value of a perpetuity equals its annual payment divided by the discount rate. Here the annual payment is 200 and the rate is 8% (0.08). So the present value is 200 / 0.08 = 2500. This uses the standard assumption that payments occur at the end of each year (an ordinary perpetuity). If payments started immediately, the value would be 200 + 2500 = 2700, which matches 2500 × (1 + 0.08).

The central idea is that the value of a perpetuity equals its annual payment divided by the discount rate. Here the annual payment is 200 and the rate is 8% (0.08). So the present value is 200 / 0.08 = 2500. This uses the standard assumption that payments occur at the end of each year (an ordinary perpetuity). If payments started immediately, the value would be 200 + 2500 = 2700, which matches 2500 × (1 + 0.08).

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