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What is the present value of all future earnings

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1.A rich aunt has promised you $5000 one year from today. In addition, each year after that, she has promised you a payment (on the anniversary of the last payment) that is 5% larger than the last payment. She will continue to show this generosity for 20 years, giving a total of 20 payments. If the interest rate is 5%, what is her promise worth today?

2.You are running a hot Internet company. Analysts predict that its earnings will grow at 30% per year for the next five years. After that, as competition increases, earnings growth is expected to low to 2% per year and continue at that level forever. Your company has just announced earnings of $1,000,000. What is the present value of all future earnings if the interest rate is 8%? (Assume all cash flows occur at the end of the year.)

Reference no: EM13488901

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